What Is Labor Burden?
Labor burden is the employer-paid cost above an employee's base wages. It turns a wage into a more complete employee cost for estimating, job costing, and workforce planning.
What Costs Are Included in Labor Burden?
Depending on the business and employee, burden can include employer payroll taxes, workers' compensation, health and insurance benefits, retirement contributions, and employee-specific training, uniforms, certifications, phones, or software. Paid leave affects productive-hour cost because the employee remains paid while fewer hours are available for work.
Wage Rate vs True Labor Cost
A $30 hourly wage produces $62,400 in annual base wages at 2,080 paid hours. Employer taxes, insurance, benefits, and other costs increase that amount. The wage belongs in the calculation, but it is not the complete answer to what the employee costs the contractor.
Labor Burden Calculation Example
| Component | Annual amount |
|---|---|
| Base wages: $30 × 2,080 | $62,400 |
| Employer payroll taxes: 8% | $4,992 |
| Workers' compensation: 5% | $3,120 |
| Benefits | $7,500 |
| Other employee costs | $1,500 |
| Total labor burden | $17,112 |
| Total employee cost | $79,512 |
The burden is $17,112 ÷ $62,400 = 27.4%. True cost per paid hour is $79,512 ÷ 2,080 = $38.23. With 160 paid non-working hours and 75% productive utilization, productive hours are 1,440 and true cost becomes $55.22 per productive hour. The annual wage and burden do not increase when PTO is entered; fewer productive hours carry the same annual employee cost.
Why Labor Burden Matters for Contractors
Using wage alone can understate estimated labor cost, distort contractor job costing, and make projected job margin look stronger than it is. A realistic loaded labor cost improves estimates and helps the Job Profit Calculator show how labor cost affects job profit. It also provides the starting point for pricing labor and deciding how the work will recover business overhead.
Labor Burden vs Billable Labor Rate
Labor burden determines what the employee costs the business. A billable labor rate determines what the customer must be charged after considering productive capacity, overhead, and profit. Do not treat the employee cost calculated here as a selling price. Continue to the Labor Rate Calculator to calculate your billable labor rate, then use the Markup & Margin Calculator to set pricing from your target margin.
Learn the method behind the numbers
The labor burden guide explains each cost category, PTO treatment, productive hours, common mistakes, and when to update the calculation.
Read the Labor Burden Guide