The True Cost of an Employee: Calculating Labor Burden

What Is Labor Burden?

Labor burden is the total cost of employing someone beyond their base wage. It includes all the mandatory taxes, benefits, and associated costs that come with having an employee on payroll.

When you price jobs using only the hourly wage, you're guaranteed to lose money. A $25/hour carpenter doesn't cost you $25/hour—they cost you somewhere between $32.50 and $37.50 depending on your specific burden rate.

Industry Standard

According to the Construction Financial Management Association (CFMA), labor burden typically ranges from 30% to 50% of base wages for construction workers, depending on benefits offered and state requirements.

Components of Labor Burden

Let's break down exactly what makes up your labor burden. These percentages are based on 2024-2025 rates:

Mandatory Employer Taxes

Tax	Rate	Notes
Social Security (FICA)	6.2%	Up to $168,600 (2024)
Medicare	1.45%	No wage cap
Federal Unemployment (FUTA)	0.6%	First $7,000 (with state credit)
State Unemployment (SUTA)	1-6%	Varies by state and history
Subtotal: Taxes	9.25-14.25%

Source: IRS Publication 15 (Circular E) and IRS Publication 15-A for current tax rates

Insurance Requirements

Insurance	Typical Rate	Notes
Workers' Compensation	3-15%	Varies by trade and state
General Liability	1-3%	Portion allocated to labor
Subtotal: Insurance	4-18%

Source: National Council on Compensation Insurance (NCCI) rate filings

Benefits (If Offered)

Benefit	Typical Cost
Health Insurance	$400-800/month per employee
Paid Time Off	4-8% of wages
Retirement Match	3-6% of wages
Training & Certifications	1-2% of wages

Source: Bureau of Labor Statistics Employer Costs for Employee Compensation

Real Example: $25/Hour Carpenter

Let's calculate the actual cost of a carpenter earning $25/hour in a typical scenario:

Component	Rate	Cost/Hour
Base Wage	100%	$25.00
FICA + Medicare	7.65%	$1.91
FUTA + SUTA	3.0%	$0.75
Workers' Comp	8.0%	$2.00
General Liability	2.0%	$0.50
Health Insurance	—	$3.46
Paid Time Off (10 days)	4.0%	$1.00
Total Burdened Cost	~35%	$34.62

The Hidden Loss

If you quote jobs using the $25/hour wage, you're losing $9.62 per hour on labor before you even account for overhead or profit. On a 40-hour job, that's $385 gone.

How to Calculate Your Burden Rate

Follow these steps:

Add up annual payroll taxes — FICA, Medicare, FUTA, SUTA for all employees
Add insurance premiums — Workers' comp, liability portion, health insurance
Add benefits costs — PTO, retirement match, training, uniforms, tools provided
Divide by total wages — This gives you your burden rate as a percentage

Formula:

Burden Rate = (Taxes + Insurance + Benefits) ÷ Total Wages × 100

Burdened Hourly Rate = Base Wage × (1 + Burden Rate)

Burden Rates by Trade

Different trades have different burden rates, primarily due to workers' compensation variations:

Trade	Typical WC Rate	Total Burden
Office/Admin	0.5-1%	25-30%
Electrician	3-5%	28-35%
Plumber	4-6%	30-38%
Carpenter	6-10%	32-42%
Roofer	15-25%	40-55%

Source: NCCI rate filings and CFMA industry benchmarks

Key Takeaways

Always use burdened labor rates when estimating jobs—never base wages
Calculate your actual burden rate annually using real numbers from your books
Different employees may have different burden rates based on their benefits
Review your workers' comp classification codes—you might be overpaying
Factor in non-productive time (meetings, travel, cleanup) when estimating

Sources & Further Reading

IRS Publication 15 (Circular E) — Employer's Tax Guide with current FICA, Medicare, and FUTA rates
IRS Publication 15-A — Employer's Supplemental Tax Guide
BLS: Employer Costs for Employee Compensation — National statistics on total compensation costs
National Council on Compensation Insurance (NCCI) — Workers' compensation rate information by state and classification
Construction Financial Management Association — Industry benchmarks and financial best practices