Labor Burden Rate
The labor burden rate is what an hour of an employee's time actually costs you, as opposed to what shows on their paycheck. It adds payroll taxes, workers' compensation, liability insurance, health benefits, retirement match, paid time off, training, and the truck and phone they use, then spreads that total across the hours they actually work on jobs. A $28-an-hour installer commonly costs $38 to $42 an hour once the burden is counted. Bid at $28 and the gap comes straight out of margin.
Why Labor Burden Rate Matters to an Owner
Burden is the quietest way a profitable-looking business loses money, because the error repeats on every hour of every job all year. A crew of eight billing 1,500 hours each at a rate that is $10 an hour light is a $120,000 hole, and it never appears as a line item anywhere. It shows up instead as a year that felt busy and ended thin. Burden also moves: workers' comp rates change with your mod, health premiums climb, and a rate set three years ago is wrong today even if it was right then.
Formula
Burdened rate = (annual wages + payroll taxes + workers' comp + insurance + benefits + PTO + training + equipment/vehicle allocation) ÷ annual billable hours.
Benchmark
Trades businesses typically run 25-40% burden on top of wages; higher where workers' comp classes are expensive (roofing can exceed 50%). Billable hours usually land at 70-80% of paid hours once drive time, shop time, and PTO come out.
Tools for Measurement
An Operator's Take
We ask owners what their labor costs and almost everyone answers with wages. When we rebuild the number from the actual payroll register, insurance invoices, and benefits statements, the burdened rate lands 30-45% above wages, and the room usually goes quiet. The second surprise is divisor math: burden gets spread over billable hours, not paid hours. A tech paid for 2,080 hours who turns wrenches for 1,500 carries his idle time, drive time, and shop time into the rate. That is not a problem to eliminate. It is a real cost to price.
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Common Mistakes
What I see go wrong most often in the field.
Dividing by 2,080. That spreads burden across hours you pay for, including hours nobody can bill. Divide by the hours that actually land on jobs.
Setting it once and never updating it. Comp mods, health premiums, and wage raises all move the rate. Recalculate at every insurance renewal and every raise cycle.
Using one blended rate for every role. A foreman and a helper carry different burdens. One average rate overprices helper-heavy work and underprices foreman-heavy work.
Forgetting the vehicle. The truck, fuel, and phone a tech uses every day are labor costs in practice. Leaving them in overhead hides them from every bid.
Treating burden as an accounting detail. It is a pricing input. The place it matters is the estimate, before the job is won at the wrong number.
What to Do This Week
Concrete steps you can take right now.
Build the real number for one role this week: pull wages, taxes, comp, insurance, and benefits from actual statements and divide by that role's billable hours.
Compare the result to the rate in your estimating template. The gap, times your annual billable hours, is what mispricing costs you per year.
Set a calendar rule: rates get rebuilt at insurance renewal and after raises. No exceptions.
Track billable versus paid hours for a month. The ratio is the divisor, and most owners guess it high.
Put the burdened rates where estimates are built so the correct number is the default, not the extra step.
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Frequently Asked Questions
What is a labor burden rate?
It is the full hourly cost of an employee: wages plus payroll taxes, workers' compensation, insurance, benefits, paid time off, training, and the equipment they use, divided by the hours they actually spend on billable work. For most trades businesses it lands 25-40% above the wage rate, and it is the number that belongs in every estimate.
How do I calculate labor burden?
Add up everything one employee costs for a year from real documents: the payroll register, the workers' comp audit, insurance invoices, and benefits statements. Then divide by their annual billable hours, not their paid hours. If a tech is paid for 2,080 hours but spends 1,500 on jobs, 1,500 is the divisor. The rest is drive time, shop time, and PTO, and it rides inside the rate.
What is a typical labor burden percentage?
Most trades run 25-40% on top of wages. Roofing and other high workers' comp classes can pass 50%. But the typical number matters less than your number, because comp mods, health premiums, and local taxes vary enough that a neighbor's rate can be wrong for you by ten points.
Why does labor burden matter for pricing?
Because the error compounds silently. A rate that is $10 an hour light does not lose money once, it loses money on every labor hour you sell all year. Eight field employees at 1,500 billable hours each is 12,000 hours; at $10 light that is $120,000 of margin gone with no single event to point at. It is the difference between a busy year and a profitable one.
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