How to Calculate Labor Burden (And Why $25/hr Isn't $25/hr)
Payroll taxes, workers' comp, benefits — and the billable-hours divisor most explanations skip. Build your true hourly labor cost step by step.
You pay a new technician $25 an hour. Quick math says that's $52,000 a year and maybe $32 an hour once you add a cushion for "taxes and stuff." Real math says the number you should be using in estimates is closer to $36–40 — and if you're quoting with $32, the gap isn't coming out of your profit discussions, because it never shows up there. It's already baked into every labor line as invisible underpricing. Here's the build-up that finds it.
What labor burden actually includes
- Payroll taxes you pay as the employer: FICA (7.65% up to the wage base), plus federal and state unemployment (FUTA/SUTA). Combined, commonly 10–15% of wages.
- Workers' compensation insurance — set by class code and state, and wildly different by trade: an office worker's rate and a roofer's rate are not in the same universe.
- Benefits: health insurance, retirement match, phone, uniform, tool allowances. Anything you pay because they're on the crew.
- Fixed costs tied to the person: training, licensing, drug testing, company gear.
The formula
Two steps: total the annual cost, then divide by the hours that actually earn.
- Total annual cost = (wage × paid hours) × (1 + taxes% + comp% + benefits%) + other annual costs
- Billable hours = (paid hours − PTO/holidays) × (1 − non-billable%)
- Burdened hourly cost = total annual cost ÷ billable hours
The most common version of this calculation stops after step one and reports "wage + 30%" as the rate. That number is usable for accounting — but it's the wrong one for pricing, because it assumes every paid hour lands on a job.
Worked example: a $25/hr technician
Say a full-time tech (2,080 paid hours) at $25/hr with 12% payroll taxes, a 6% workers' comp class, 5% benefits, $1,200/yr of training and gear, 120 hours of PTO, and 10% of remaining time going to quoting, cleanup and windshield:
| Line | Calculation | Amount |
|---|---|---|
| Base wages | $25 × 2,080 | $52,000 |
| Payroll taxes (12%) | $52,000 × 0.12 | $6,240 |
| Workers' comp (6%) | $52,000 × 0.06 | $3,120 |
| Benefits (5%) | $52,000 × 0.05 | $2,600 |
| Other (training, tools) | flat | $1,200 |
| Total annual cost | $65,160 | |
| Billable hours | (2,080 − 120) × 0.90 | 1,764 |
| Burdened hourly cost | $65,160 ÷ 1,764 | $36.94 |
So the $25 employee costs $36.94 for every hour that can be sold — a 25% jump from the naive $32. If your estimates use $32 and the market supports $85/hr billing, you're fine. If they're tight, that $4.94/hr difference is the reason "busy but broke" doesn't show up in any single job: it's spread across all of them.
Run your own crew through the labor burden calculator →
The mistakes that skew the number
- Using paid hours instead of billable hours — the single most common version of the error, and it always understates the rate.
- Forgetting that workers' comp is class-code specific. A shop employee at 2% and a field tech at 8% can't share one burden rate if you price their hours the same way.
- Feeding the burdened rate back through burden again — burden applies once, on top of wages. Your overhead allowance is separate and comes later in the price build-up.
- Treating owner hours as free. If you're on the tools, your hour costs what it must earn — see the hourly rate calculator for owner-operators.
What to do with the number
The burdened rate is the labor input for every other pricing decision: job prices, flat rates, break-even counts. When a job's labor line says 16 hrs × $36.94 = $591, that's the number that lets the rest of the math be trusted. A wrong burden rate doesn't make one job unprofitable — it makes every estimate quietly optimistic.
Solo operator instead? Set your own floor rate →
Frequently asked questions
What is a typical labor burden percentage?
Commonly cited ranges put employer burden around 25–40% of wages, but the honest answer is that it varies enormously by trade and state: workers' comp class codes alone can swing the percentage by double digits. Build your own number from your actual payroll, insurance and benefits costs rather than adopting a rule of thumb — the calculator takes a couple of minutes.
Is labor burden the same as overhead?
No. Labor burden is the cost of employing a specific person: their wage plus payroll taxes, workers' comp, and benefits tied to that wage. Overhead is the cost of running the business — insurance, rent, vehicles, software — that exists regardless of any single employee. Burden rides on labor lines in your estimates; overhead is recovered through your markup or margin.
Why divide by billable hours instead of paid hours?
Because the employee costs you money for every paid hour but only generates revenue for hours on a job. PTO, holidays, quoting, training and windshield time are real costs with no bill attached. Dividing total cost by only the hours that actually earn keeps the rate honest — using paid hours understates the rate and quietly moves that shortfall into every job estimate.