How to Calculate Your Labor Burden Rate (True Cost per Hour)
The short answer: Your labor burden rate is what one hour of an employee's time actually costs you once you add everything beyond their wage: payroll taxes, workers' comp, insurance, benefits, and the paid hours they are not on a job. Add those annual costs to the base wage, then divide by the hours the employee is actually billable, not the hours you pay them for. A crew member you pay $25 an hour usually costs $35 to $45 an hour fully loaded, and bidding at $25 is how a busy shop stays broke. CRMb costs every job from your crew's real punched hours at the rate you set, so the labor in your margin is the burdened number, not the sticker wage.
Ask most owners what their crew costs and they will quote the hourly wage. That number is wrong, and it is wrong in the direction that loses money. The wage is only the part of the cost you can see. The rest, the taxes, the insurance, the hours paid but not billed, is real cash out the door, and if it is not in your bids it is coming straight out of your margin.
This walks through what goes into the burden, the formula that turns it into an hourly number, and how to keep that number honest job after job.
What "labor burden" actually means
Labor burden is every cost of employing someone on top of their gross wage. It splits into two kinds, and both matter.
- Statutory and insurance costs. The ones you are required to carry or would be reckless to skip: the employer half of payroll taxes (Social Security, Medicare, federal and state unemployment), workers' compensation, and general liability insurance tied to payroll.
- Discretionary and time costs. Health insurance, retirement contributions, paid time off, holidays, training, tools and phone allowances, and vehicle costs, plus the paid hours the employee is not producing revenue.
That last piece, non-billable paid time, is the one owners forget, and it is often the biggest. You pay for vacation, holidays, sick days, drive time between sites, shop time, and the gaps between jobs. None of it lands on a customer invoice, but all of it has to be recovered from the hours that do.
The labor burden formula
The burden rate itself is a ratio, and the fully loaded rate is the dollar figure you bid with. Two formulas, used together:
Labor burden rate = annual burden costs ÷ annual base wages
Fully loaded hourly rate = (base wage + hourly burden) recovered over billable hours
The cleanest way to get the loaded rate is to work in annual totals, then divide by billable hours rather than paid hours. Here is the shape:
- Start with annual gross wages for the employee.
- Add every burden cost for the year, statutory, insurance, benefits, and the cost of paid non-billable time.
- Divide the total annual cost by the hours the employee is actually billable in a year.
That third step is where honesty lives. A full-time employee is paid for about 2,080 hours a year, but after vacation, holidays, sick time, training, and unbillable shop and drive time, they might bill only 1,700 to 1,800. Spreading the full cost over the smaller number is the whole point: those unbillable hours have to be paid for by the billable ones.
A worked example
Take a crew member with a base wage of $25 an hour, or $52,000 a year at 2,080 hours.
| Cost bucket | Annual amount |
|---|---|
| Base wages (2,080 hrs × $25) | $52,000 |
| Employer payroll taxes (~10%) | $5,200 |
| Workers' comp + liability (~8%) | $4,160 |
| Health + retirement benefits | $8,400 |
| Paid time off, holidays, training (already in wages, unbillable) | — |
| Total annual cost | $69,760 |
Now the billable-hours divide. Of the 2,080 paid hours, subtract 3 weeks off, holidays, and unbillable shop and drive time, roughly 380 hours, leaving about 1,700 billable hours.
Fully loaded rate = $69,760 ÷ 1,700 = $41.03 per billable hour
The $25 wage became a $41 cost to put that person on a job for an hour, a burden of about 64% over the base wage. Bid that job at $25 an hour of labor and you are underwater before you count a single dollar of materials or overhead. This is exactly the loaded rate that feeds how to calculate labor cost per job.
Why the sticker wage wrecks your margin
The gap between wage and burdened cost does not feel dangerous on one job. It compounds. If you bid labor at $25 when it costs $41, every crew-hour quietly loses $16. A job with 40 labor hours is $640 in the hole on labor alone, and you would never see it as a line item, only as a year that felt busy and ended thin.
Margin is built on cost, and if the cost is understated the margin is fiction. Pricing to a target margin only works when the labor number you start from is the burdened one, see how to estimate profit margin on a job. Get the burden into the rate and the margin you bid is the margin you can actually keep.
Keep the rate honest with real hours
A burden rate is an estimate, and like every estimate it drifts. Insurance renews, benefits change, and the ratio of billable to unbillable hours moves with your workload. The way to keep it trustworthy is to compare the hours you assumed against the hours your crew actually worked, over and over, until the rate carries your real history.
That comparison is hard to run by hand because it means matching timesheets to jobs after the fact, which almost never happens on schedule. CRMb closes the loop automatically. Crew hours come from the Punch time clock, so each job is costed from the minutes people actually worked, at the loaded pay rate you set, not a wage you meant to update. The reports view then shows the real labor cost and margin on every job, so if your billable-hours assumption is too rosy, the numbers surface it while you can still fix the next bid.
Set the rate with the burden baked in, feed it real punched hours, and your labor cost stops being a guess and starts being a measurement.
Frequently Asked Questions
What is a labor burden rate?
It is the total cost of employing someone beyond their base wage, expressed as a rate. It includes the employer share of payroll taxes, workers' compensation, liability insurance, health and retirement benefits, and the paid hours the employee is not billable, like holidays and drive time. Expressed as a percentage, it is annual burden costs divided by annual wages; expressed in dollars, it is the fully loaded hourly rate you should bid with.
How do I calculate my labor burden rate?
Add up an employee's annual gross wages plus every burden cost for the year, taxes, insurance, benefits, and paid non-billable time, then divide the total by the hours they are actually billable. If a $25-an-hour worker costs $69,760 a year all-in and bills 1,700 hours, the fully loaded rate is about $41 per hour. Always divide by billable hours, not paid hours, or you will understate the rate.
What is a typical labor burden percentage?
For most service and trades businesses the burden runs roughly 25% to 40% over the base wage from statutory and insurance costs alone, and can reach 50% to 70% once benefits and unbillable paid time are included. The exact figure depends on your state, your workers' comp class, and how generous your benefits are, so calculate your own rather than borrowing a rule of thumb.
What is the difference between the base wage and the loaded rate?
The base wage is what the employee sees on their paycheck per hour. The loaded, or fully burdened, rate is what that hour costs you after taxes, insurance, benefits, and unbillable time are added and spread over billable hours. The loaded rate is always higher, and it is the number that belongs in your bids and your job-cost math.
Should I include unbillable time in the burden?
Yes, and it is the piece owners most often miss. Vacation, holidays, sick time, training, shop time, and drive time are all paid but produce no revenue, so their cost has to be recovered from the hours that do bill. Leaving unbillable time out is the single most common reason a burden rate comes out too low.
Getting started with CRMb
Calculate the burden once, per employee: annual wages plus taxes, insurance, and benefits, divided by real billable hours. Bid with that loaded rate, then check it against what jobs actually cost so it stays honest as your costs and workload change.
CRMb runs your clients, scheduling, jobs, inventory, and invoicing on one system, and costs every job from your crew's real punched hours at the loaded rate you set, so the margin you see is built on the true cost of labor, not the sticker wage. It runs on Mac, iPad, and the web. Start a free 14-day trial and bid your next job from your real numbers.