Whether you run a landscaping company, construction business, electrical company, plumbing company, HVAC business, painting company, roofing company, remodeling company or another contracting business, knowing your true labor cost is critical to pricing profitable work.

Enter your actual numbers below to calculate your estimated labor burden, total annual employee cost and effective labor cost per productive hour.

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Free Contractor Labor Burden Calculator

What Is Labor Burden?

Labor burden is the cost of employing a worker above and beyond their base wage.

If an employee earns $22 per hour, that does not mean the employee costs your business only $22 for every hour of work.

The business may also be responsible for employer payroll taxes, workers’ compensation insurance, paid vacation, paid holidays, overtime premiums, benefits and other employee-related expenses.

The business may also be responsible for employer payroll taxes, workers’ compensation insurance, paid vacation, paid holidays, overtime premiums, benefits and other employee-related expenses.

Those additional costs create your labor burden.

Understanding labor burden helps contractors answer a much more useful question than simply, “What do I pay this employee?”

It helps answer:

How much does employing this worker cost my business above their base wage?

Once labor burden is combined with wages and compared with productive hours, you can take the calculation one step further and determine the employee’s effective labor cost per productive hour.

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Why Labor Burden Matters When Pricing Contracting Work

Labor is one of the largest expenses for many contracting businesses. Small mistakes in calculating labor cost can become large pricing mistakes over hundreds or thousands of employee hours.

For example, pricing work as though a $22-per-hour employee costs the company $22 per hour can leave out thousands of dollars in annual employment costs.

That difference affects:

• Job estimates
• Hourly and daily crew rates
• Gross profit
• Profit margins
• Hiring decisions
• Overtime decisions
• Job costing
• Annual profitability

Knowing your total employee cost—and eventually your effective labor cost per productive hour— gives you a better starting point for deciding what your company actually needs to charge.

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What Should Contractors Include in Labor Burden?

The exact labor burden varies by company, location, trade and employee.

Common labor burden costs can include:

Employer payroll taxes
The employer-paid portion of applicable payroll taxes adds to the employee’s actual cost.

Workers’ compensation insurance
Workers’ compensation costs can vary considerably between trades and employee classifications. Whenever possible, use the rate that applies to your business and employee.

Paid vacation and PTO
Employees may still receive wages while taking paid time off even though those hours are not producing billable work.

Paid holidays
Paid holidays create another employment cost without adding productive field hours.

Overtime
Regular overtime can materially increase the annual cost of an employee and should be accounted for when estimating true labor cost.

Employee benefits
Employer-paid health insurance, retirement contributions and other benefits can be included when applicable.

Other employee expenses
Depending on your business, this could include uniforms, training, certifications, phones or other costs directly associated with employing that worker.

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From Labor Burden to Effective Labor Cost

Labor burden tells you how much additional cost your company carries above an employee’s wages. But for estimating work, there is another useful number to know: effective labor cost per productive hour.

A full-time employee working 40 hours per week for 52 weeks represents 2,080 paid regular hours per year.

But paid hours and productive hours aren’t necessarily the same thing.

Paid vacation, holidays and other paid non-working days reduce the number of hours available to perform productive work.

That means dividing total annual employee cost by every paid hour can understate what each productive hour actually costs the business.

Effective Labor Cost per Productive Hour = Total Annual Employee Cost ÷ Productive Hours

This calculator accounts for paid non-working time so you can see how labor burden ultimately affects the cost of each productive hour.

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Labor Burden vs. Overhead: What’s the Difference?

Labor burden and business overhead are related, but they are not the same thing.

Labor burden includes costs directly associated with employing a worker.

Overhead generally includes costs required to operate the business regardless of which employee is performing a particular job.

Overhead may include expenses such as:

• Office and administrative salaries
• Rent
• Advertising and marketing
• Business software
• Accounting
• General business insurance
• Office expenses
• Certain vehicle and equipment expenses

Those costs are intentionally not included in this labor burden calculator.

Your labor burden tells you the additional employee-related costs your company pays above the employee’s wages. It does not tell you what you should charge a customer for that employee’s time.

Your selling price still needs to account for appropriate overhead and profit.

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How to Calculate Labor Burden

At its simplest, labor burden begins with the employee’s wages and adds the additional costs associated with employing that worker.

A basic calculation looks like this:

Labor Burden = Employer Payroll Taxes + Workers’ Compensation + PTO/Other Paid-Time Costs + Benefits + Other Employee Costs

To estimate the true cost of the employee’s productive time:

Effective Labor Cost Per Productive Hour = Total Annual Employee Cost ÷ Productive Hours

You can also express the additional cost above the employee’s wage as a labor burden percentage.

However, every contracting business is different. Using your company’s actual payroll, insurance, PTO and benefit information will produce a much more useful estimate than relying on a generic industry percentage.

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Example: What Does a $22-an-Hour Employee Really Cost?

Suppose you hire an employee for $22 per hour.

The $22 wage is only the starting point.

Your company may also pay employer payroll taxes and workers’ compensation. The employee may receive paid holidays and vacation. They may regularly work overtime or receive employer-paid benefits.

Once those expenses are considered — and paid non-working hours are removed from productive hours — the cost of having that employee produce an hour of work can be significantly higher than $22.

That is why contractors should understand both labor burden and effective labor cost before setting crew rates or pricing jobs.

Use the calculator above with your actual company numbers rather than relying on the employee’s wage alone.

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Labor Burden Calculator FAQs

What is a typical labor burden percentage for contractors?

There is no single labor burden percentage that is accurate for every contractor. Payroll taxes, workers’ compensation rates, PTO, benefits and other costs vary by location, trade and company. Your own expenses provide a better answer than applying a generic percentage.

Is labor burden the same as payroll taxes?

No. Employer payroll taxes are one component of labor burden. Labor burden can also include workers’ compensation, paid time off, benefits and other employee-related costs.

Is labor burden the same as overhead?

No. Labor burden generally represents costs directly associated with employing a worker. Overhead represents broader expenses required to operate the company. Both ultimately need to be recovered when pricing work, but separating them makes job costing and pricing easier to understand.

Should workers’ compensation be included in labor burden?

Yes, when workers’ compensation insurance applies to the employee. Rates can vary substantially by trade and employee classification, so contractors should use their actual applicable rate whenever possible.

Should paid vacation and holidays be included?

Yes. Paid vacation and holidays cost the business money while reducing the number of productive hours available during the year. Accounting for paid non-working time provides a more realistic cost per productive hour.

Should overtime be included in labor burden calculations?

If employees regularly work overtime, including it can provide a more accurate estimate of annual employee cost. Overtime wages should be calculated using the applicable overtime rate.

Does this calculator tell me what to charge customers?

No. This calculator estimates what an employee costs your business. Your customer billing rate should also account for company overhead, equipment and vehicles where applicable, and the profit margin your business needs.

Can this calculator be used by different types of contractors?

Yes. The calculator is designed for contracting and home-service businesses across many trades, including construction, landscaping, hardscaping, concrete, electrical, plumbing, HVAC, roofing, painting, remodeling and similar field-service businesses.