True Labor Burden Calculator

Why Labor Burden Destroys Remodeling Profits

When a contractor builds an estimate assuming a carpenter costs $35 an hour, they are guaranteeing a massive loss. The true labor burden is the hidden cost of putting an employee in the field.

Every hour an employee works, the employer pays mandatory FICA taxes (Social Security and Medicare matching), State and Federal unemployment taxes (SUTA/FUTA), Worker's Compensation insurance based uniquely on the worker's class code, General Liability coverage, and any health or retirement benefits.

How to Calculate Labor Burden

Take the gross yearly wage, add all employer-paid taxes, insurance premiums, and benefit costs, then divide the total by the hours actually worked, not the hours paid. A full-time employee is paid for 2,080 hours, but holidays, vacation, and sick days are paid and not billable. Divide by the hours worked and that paid time off is built into every billable hour, instead of coming out of your margin. Note that unemployment taxes are capped: FUTA applies to the first $7,000 of wages and SUTA to your state's wage base, so they are small fixed amounts, not a percentage of every dollar you pay. For a step-by-step walkthrough with burden rates by trade, read our guide to calculating labor burden.

The Labor Burden Formula & Benchmarks

The mathematical formula to determine your burden rate is: Burden Rate % = (Total Annual Burden Costs ÷ Annual Base Wages) × 100. You then calculate the fully burdened cost of an hour of work using: Burdened Hourly Cost = (Annual Wages + Annual Burden) ÷ Hours Actually Worked. To price the hour, divide that cost by (1 − your target gross margin).

In the construction industry, benchmark labor burden rates typically fall between 25% and 45%. Residential remodelers often see rates around 28% to 38%, while trades with higher injury risks, like roofing, can see burden rates exceed 40% due to elevated workers' compensation premiums.

Real-World Worked Example

Take a lead carpenter earning $35.00 per hour, full-time: 2,080 paid hours, or $72,800.00 in wages a year. The employer also pays FICA ($5,569.20), federal unemployment ($42.00), state unemployment ($210.00 at 3% on the first $7,000), workers' compensation at 8% ($5,824.00), general liability at 2% ($1,456.00), and benefits of $4.50 per paid hour ($9,360.00). That is $22,461.20 of burden, a 30.9% burden rate, for a total annual cost of $95,261.20. With 16 paid days off he works 1,952 hours, so each hour worked costs $48.80. Estimating that hour at $35.00 leaks about $552.07 a week per full-time employee, and billing it at a 40% gross margin means charging $81.34 an hour.

When to Use This Calculator

You should run this calculator every time you hire a new employee, when insurance premiums renew, or when updating your estimating templates annually. By consistently using the fully burdened rate in your estimates, you protect your job's net profit from being eroded by hidden employment costs.

How This Calculator Works

The calculator uses the same formulas and defaults shown in the worked example above, so you can check any result by hand.

• Annual wages = hourly wage × 2,080 paid hours (a 40-hour week for 52 weeks).
• FICA = 7.65% of wages (employer share of Social Security and Medicare).
• FUTA = 0.6% of the first $7,000 of wages per employee. SUTA defaults to 3% of the first $7,000. Both are capped, so they are small fixed amounts.
• Workers' compensation and general liability = the percentage of wages you enter. Defaults are examples, not quotes.
• Benefits = the dollars per paid hour you enter.
• Hours worked = paid hours minus paid days off (16 days by default × 8 hours). Burdened rate = (wages + all burden) ÷ hours worked.
• Billing rate = burdened rate ÷ (1 − target gross margin), with a 40% default margin.

Limits. State unemployment rates, workers' compensation class-code rates and benefit costs differ by state, employer and employee, so replace the defaults with your own payroll and insurance figures. This is a planning tool, not tax or accounting advice. Federal rates and wage bases follow IRS Publication 15 and benchmark ranges draw on employer-cost data from the U.S. Bureau of Labor Statistics.