How to calculate labor burden
The wage is the smallest part of what an hour of labor costs you, and billing against the wage is how a busy year ends with no money in it.
The short answer
Labor burden is everything you pay for an employee beyond their wage, expressed as a rate per hour. The figure that matters for pricing is not the loaded hourly cost but the cost per billable hour, because the hours you pay for and the hours you can invoice are different numbers.
The formula
burden = payroll tax + unemployment + workers comp + benefits + paid time off
loaded rate = wage + burden
annual cost = loaded rate x hours paid
billable hours = hours paid - paid time off - unbillable time
true cost per billable hour = annual cost / billable hours
Two divisions, and people usually only do the first. Dividing by hours paid gives the loaded rate; dividing by hours you can invoice gives the number to price from.
Worked example
A carpenter on $28 an hour, 2,080 paid hours, 15 days of paid leave, and roughly 15% of worked time spent travelling, loading out and quoting:
payroll tax 7.65% = 2.14 · unemployment 1.2% = 0.34
workers comp 12% = 3.36 · health = 4.00 · leave 5.8% = 1.62
burden = 11.46 → loaded rate = 39.46 (40.9% on top of wage)
hours worked = 2,080 - 120 = 1,960
annual cost = 39.46 x 1,960 = 77,342
billable = 1,960 x 0.85 = 1,666
true cost = 77,342 / 1,666 = 46.42
The $28 carpenter costs $46.42 for every hour you can put on an invoice. Price at $45 and you are paying for the privilege of the work.
Why the unbillable share is the part that hurts
Burden percentages get quoted a lot and they are the easier half. Fifteen percent unbillable time adds another $6 an hour on top of a loaded rate that already looked high, and it never appears on a timesheet as a cost.
It is also the number that moves. A crew working one site all week loses very little to travel. A crew doing three small jobs a day can lose a quarter of the working day to vans, parking and setting up twice.
If you run both kinds of work, one burden rate will overprice the easy jobs and underprice the fiddly ones. Two rates is more honest, and it usually explains why the small jobs never felt profitable.
What people leave out
Tools and consumables that are not billed to a job: blades, bits, abrasives, the sealant that gets used out of the van. Small individually and a real number annually.
Training, certification renewals and the days lost to them. Supervision, if a lead hand spends part of the week directing rather than producing.
Overtime is the quiet one. Time and a half on the wage also raises the payroll tax and the workers comp, so an overtime hour costs more than 1.5 times a normal hour.
Checking it against reality
Take last year's total payroll cost, including every tax and benefit, and divide by the hours you actually invoiced. That single number is your real cost per billable hour and it needs no assumptions at all.
If it comes out well above the figure you have been pricing from, you have found where the year went.
What this leaves out
- Rates are illustrative. Payroll tax, workers comp and unemployment vary by country, state and trade class, and workers comp for roofing is nothing like it is for finish carpentry.
- Excludes overhead. This is the cost of the person, not the cost of the business around them.
- Assumes a salaried or hourly employee. Subcontractors carry their own burden and are priced differently.
This arithmetic is free to run in your browser — no signup, nothing held back.
Open the free calculatorCommon questions
- What is a typical labor burden percentage?
- Somewhere between 25% and 50% on top of wage is the usual range, and where you land depends mostly on workers comp class and whether you provide health cover. Quoting a percentage without saying which costs are inside it is meaningless, which is why the calculation matters more than the benchmark.
- Should I bill at cost plus markup or a fixed hourly rate?
- Either works as long as the cost you are marking up is the cost per billable hour rather than the wage. Most of the trouble people have with hourly rates comes from setting them against the wrong base, not from the choice of method.
- Does burden apply to subcontractors?
- Not in the same way. A sub invoices you a rate that already includes their own burden and profit. What you do need to carry is your cost of managing them, which is real and usually goes unpriced.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
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Last reviewed 22 August 2026