Free tool · Pricing
Labor Burden and Overhead Rate Calculator
A $25 wage is not a $25 cost. Payroll taxes, workers’ compensation, insurance, benefits and paid time off all ride on top, and the overhead of running the business has to be paid by someone’s hours. This calculator works it out in three steps: the labor burden for one employee, your overhead per labor hour, and the bill rate that covers both and leaves the profit you want.
The numbers stay in your browser: we do not store or receive them.
The boxes start with example numbers so you can see how it works. Replace every one with your own.
Step 1: labor burden for one employee
Labor burden
30.1%
$15,669 a year on $52,000 of wages
Cost per paid hour
$32.53
wage $25.00 plus burden
Cost per productive hour
$34.67
1,952 hours that can be billed
| Social Security and Medicare (FICA) | $3,978 | 7.6% |
| Federal unemployment (FUTA) | $42 | 0.1% |
| State unemployment (SUTA) | $189 | 0.4% |
| Workers’ compensation | $3,120 | 6.0% |
| Liability insurance on payroll | $780 | 1.5% |
| Health insurance (employer share) | $5,400 | 10.4% |
| Retirement match | $1,560 | 3.0% |
| Tools, PPE and training | $600 | 1.2% |
| Total burden | $15,669 | 30.1% |
Step 2: overhead
Overhead per year
$129,000
Overhead per labor hour
$16.52
7,808 billable hours a year
Overhead as % of sales
12.9%
Step 3: your bill rate
Break-even rate
$51.19 /hr
labor + burden + overhead, no profit
Bill rate
$56.88 /hr
$5.69 of each hour is profit
Same as a markup of
11.1%
on the break-even cost
Step 1: labor burden
Labor burden is everything you pay for an employee beyond the wage, shown as a percent of the wages. It includes the employer share of Social Security and Medicare (7.65 percent), federal unemployment (FUTA), state unemployment (SUTA), workers’ compensation, liability insurance on payroll, health insurance, retirement match, and tools or training.
Two of those stop at a wage limit: FUTA and SUTA are charged only on the first part of each employee’s pay, so they matter less as wages go up. Social Security also stops at a yearly wage limit, which this calculator ignores because hourly crews rarely reach it.
The result is shown two ways. Cost per paid hour spreads the total over every paid hour. Cost per productive hour spreads it over only the hours the person is actually working, after paid vacation, sick days and holidays, and is the number a billable hour has to cover.
Step 2: overhead
Overhead is what the business costs that no single job pays for: the shop or office, the owner’s and office staff’s pay, business insurance, software, vehicles that are not charged to jobs, accounting and marketing. Add up a year of it and divide by the billable hours of your field people (employees × productive hours each) to get overhead per labor hour. It is also shown as a percent of annual sales, which many contractors compare against their industry.
Step 3: bill rate
Break-even rate = cost per productive hour + overhead per labor hour. This is what an hour costs you before any profit.
Bill rate = break-even rate ÷ (1 − profit margin). Margin is a percent of the price, so a 10 percent margin means the rate is the break-even divided by 0.90. The same profit is a markup of 11.1 percent on cost, which is why markup and margin are easy to mix up; the markup vs margin calculator shows both side by side.
A worked example
A $25 an hour employee paid for 2,080 hours earns $52,000. With the example insurance, benefits and taxes in the boxes, the burden comes to $15,669 a year, or 30.1 percent. The cost is $32.53 per paid hour. After 16 paid days off (10 vacation and sick days and 6 holidays), 1,952 hours are productive, so each billable hour costs $34.67.
With $129,000 a year of overhead shared by four field employees (7,808 billable hours), overhead is $16.52 per labor hour, or 12.9 percent of $1,000,000 in sales. The break-even rate is $51.19 an hour, and a 10 percent profit margin makes the bill rate $56.88.
What this does not do
It uses the numbers you type, so the answer is only as good as they are: state unemployment rates and wage bases, workers’ compensation rates and insurance prices differ by state, class code and carrier. In a few states the federal unemployment credit is reduced, which raises FUTA. It does not add overtime premium, prevailing-wage fringe contributions, union dues or per-diem. It is a pricing aid, not tax or accounting advice, so check your own payroll records and your accountant.
FAQ
What is a typical labor burden?
It varies a lot with the trade, the state and the benefits. Many small contractors land somewhere around 25 to 45 percent of wages, but the only number that matters is the one you calculate from your own payroll and insurance bills.
What is the difference between burden and overhead?
Burden is the extra cost of having an employee, such as payroll taxes, insurance and benefits. Overhead is the cost of running the business that is not tied to one employee or job, such as rent, office pay and software.
Why use productive hours instead of paid hours?
You pay for vacation, sick days and holidays but cannot bill them. Dividing the total cost by only the hours that can be billed makes each billable hour carry its share of the time off.
Is margin or markup better for pricing?
They describe the same price two ways. Margin is profit as a percent of the price and markup is profit as a percent of the cost. A 10 percent margin equals an 11.1 percent markup, so use the same one every time.
Should the owner’s pay be in overhead?
If the owner does office work or runs the business and is not billed to jobs, yes. If the owner works in the field and is billed, count them as an employee in the field headcount instead.
Is anything I type saved?
No. The calculation runs in your browser and nothing is stored or sent to us.
Want these rates to flow into your bids? PoPs Estimating prices labor with your own burdened rates and keeps the quantities tied to the bid.
Questions?
Ask us anything about PoPs Suite, pricing, or running a construction company. A real person answers, usually within a business day.