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Glossary · Labor cost

Labor burden

Labor burden is the cost of employing a worker beyond their wages: employer payroll taxes, workers' compensation, insurance, benefits and other required or agreed costs. It is usually shown as a percentage of wages, and it is what turns a paid rate into a real cost to the company.

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What is included in labor burden?

Labor burden includes every employer cost that exists because a person is on the payroll, other than the wage itself. Some items are set by law and some by the company's own plans.

Common burden items
ItemWhere it comes from
Employer Social Security and Medicare (FICA)Federal payroll tax, paid by the employer on wages
Federal and state unemployment taxFederal and state payroll taxes with rates that vary
Workers' compensation insuranceA state-regulated policy priced by risk class and claims history
Health, retirement and union fringesCompany plans or collective bargaining agreements
Paid time offPolicy; counted as burden when it is paid on top of working hours
Not every company counts the same items. Write down which ones are in your number so it can be compared from job to job.

What does labor burden look like as a number?

A laborer paid $28 an hour with a 32% burden

Hourly wage
$28.00
Burden at 32%
$28.00 × 0.32 = $8.96
Cost to the company per paid hour
$28.00 + $8.96 = $36.96

The 32% is illustrative. Use your own figures; the result is a loaded rate (see loaded labor rate).

Burden is paid whether or not the hour is billable. That is why a bid priced on the wage alone can lose money on the job it wins.

Labor burden attaches to a person and their hours. Overhead covers costs of running the business, such as the office, trucks parked on the lot and estimating time. Contractors often track them separately so that job cost and company cost do not blur together.

Hours are the multiplier on every burden rate, so an accurate record of hours by worker and jobsite is what makes the number usable. Labor burden feeds job costing.

Frequently asked questions

Is labor burden the same as overhead?
No. Labor burden is tied to employees and their hours. Overhead is the cost of running the business that is not tied to a particular worker or job.
What is a typical labor burden percentage?
It varies widely by state, workers' compensation class, benefit plans and union agreements, so there is no single right figure. Calculate it from your own payroll and insurance records.
Does labor burden include paid time off?
Companies differ. Some include paid time off in burden; others spread it by dividing total cost by productive hours. Pick one method and use it consistently.

Sources

  1. 1.IRS Topic no. 751, Social Security and Medicare withholding rates · Internal Revenue Service
  2. 2.Employer Costs for Employee Compensation · U.S. Bureau of Labor Statistics

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