Guide · Labor cost

How to calculate labor burden

To calculate labor burden, add up everything a worker costs you in a year beyond base wages: employer FICA (7.65%), federal and state unemployment tax, workers' comp, health and retirement benefits. Divide that total by annual wages for the burden percentage. For a loaded rate, divide wages plus burden by the hours you can actually charge to jobs, not the hours you pay, because paid time off and shop time also have to be recovered.

Last updated October 29, 2026By ZeroBadge

What is labor burden?

Labor burden is the cost of an employee on top of the wage you pay them: payroll taxes, insurance and benefits. It is usually expressed as a percentage of wages, or folded into a loaded hourly rate that you use to cost and bid jobs.

Burden percentage: Annual burden costs ÷ annual wages. Useful for comparing workers and checking a bid markup.
Loaded labor rate: (Annual wages + annual burden) ÷ hours. Which hours you divide by changes the answer, as the worked example shows.

For the short definitions, see labor burden and loaded labor rate in the glossary.

What goes into labor burden?

Labor burden has a legally required part, which every employer pays at rates set by law or by an insurer, and a chosen part, which depends on what you offer. Paid time off and non-productive hours are not extra cash, but they change how many hours carry the cost.

Labor burden components and how each is calculated
Component	How it is calculated	Who sets it
Social Security (employer share)	6.2% of wages, up to the wage base: $184,500 for 2026	Federal law (IRS)
Medicare (employer share)	1.45% of all wages, no cap. The extra 0.9% above $200,000 is employee-only, with no employer match	Federal law (IRS)
FUTA	6.0% of the first $7,000 per employee, less a credit of up to 5.4% for state tax paid: usually 0.6%, or $42 per employee per year	Federal law (IRS)
FUTA credit reduction	Employers in a state with unpaid federal unemployment loans lose part of the credit. California employers had a 1.2% reduction for 2025, an extra $84 per employee	U.S. Department of Labor
SUTA (state unemployment)	Your assigned rate × the state's taxable wage base. Both vary by state, and your rate moves with your claims history	Your state
Workers' compensation	Payroll ÷ 100 × the rate for the worker's classification code × your experience modifier	Your insurer and state rating rules
Health insurance	Employer share of premiums, per month	Your plan
Retirement	Employer match or contribution	Your plan
Union fringe benefits	Hourly contributions set by the collective bargaining agreement (health and welfare, pension, training)	Your agreement
Paid time off and holidays	Paid hours with no job to charge them to	Your policy
Non-productive time	Paid hours that are not chargeable: shop time, training, safety meetings, weather days, unbilled travel	How your crews actually work

Tax rates and wage bases change. Check the current year with your payroll provider or accountant before you rely on a number.

Some contractors also spread general liability insurance (often rated on payroll), payroll processing fees, small tools and phones into burden. That is a policy choice. Whatever you include, include it the same way for every worker so loaded rates stay comparable.

Worked example: a journeyman electrician at $40 an hour

This example uses one full-time journeyman paid $40 an hour for 2,080 hours a year (40 hours × 52 weeks). The federal tax figures are real for 2026. The state unemployment rate, workers' comp rate and benefit costs are invented for the example; replace them with your own.

Step 1: annual wages and burden costs

Annual wages: $40 × 2,080 = $83,200
Employer FICA (7.65%): $83,200 × 0.0765 = $6,364.80 (wages are under the $184,500 Social Security cap)
FUTA after full credit (0.6% of $7,000): $42.00
SUTA (example: 3.4% on a $10,000 wage base): $340.00
Workers' comp (example: $6.50 per $100, mod 0.95): $83,200 ÷ 100 × $6.50 × 0.95 = $5,137.60
Health insurance (example: $850 a month): $10,200.00
Retirement match (example: 3% of wages): $2,496.00
Total annual burden: $24,580.40

Paid time off is not added here because it is already inside the $83,200: the 2,080 paid hours include vacation and holidays.

Step 2: burden percentage and loaded rate per paid hour

Burden percentage: $24,580.40 ÷ $83,200 = 29.5%
Total annual cost: $83,200 + $24,580.40 = $107,780.40
Loaded rate per paid hour: $107,780.40 ÷ 2,080 = $51.82
Burden on paid hours: 29.5%, a loaded rate of $51.82

Step 3: loaded rate per productive hour

Paid time off and holidays: 80 hours vacation + 64 hours (8 holidays) = 144 hours
Non-productive paid hours (example): 100 hours of shop time, training and safety meetings
Hours you can charge to jobs: 2,080 − 144 − 100 = 1,836 hours
Loaded rate per productive hour: $107,780.40 ÷ 1,836 = $58.70
Burden against wages on those hours: ($107,780.40 − $40 × 1,836) ÷ ($40 × 1,836) = $34,340.40 ÷ $73,440 = 46.8%
Burden on productive hours: 46.8%, a loaded rate of $58.70

Costing jobs at $51.82 instead of $58.70 recovers $51.82 × 1,836 = $95,141.52 of a $107,780.40 cost, leaving $12,638.88 a year unrecovered for this one worker.

Should you use the burden percentage or the loaded rate?

Use the loaded rate per productive hour to cost and bid jobs, and the burden percentage to compare workers or sanity-check a markup. The same journeyman is 29.5% burdened on paid hours and 46.8% burdened on the hours that reach a job. Both numbers are correct; they answer different questions.

The same worker, two ways of stating burden
Measure	Divides by	Result in the example	Use it for
Burden % of wages	Annual wages	29.5%	Comparing benefits packages and tax load across workers
Loaded rate per paid hour	2,080 paid hours	$51.82	Payroll budgeting
Loaded rate per productive hour	1,836 chargeable hours	$58.70	Job costing, bids, change orders, T&M rates

Why does labor burden change during the year?

Because unemployment taxes stop once a worker passes the wage base. FUTA applies only to the first $7,000 of wages, which the journeyman in the example earns in 175 hours ($7,000 ÷ $40), about four and a half weeks. In January the per-hour tax cost is high; by March it is zero for that tax. State unemployment works the same way on its own wage base.

Calculate burden on a full year, then divide by annual hours. Do not take one January pay period and annualize it.
High earners pass the Social Security wage base late in the year; Medicare has no cap.
Seasonal and short-term workers hit unemployment wage bases on fewer hours, so their burden per hour is higher.
Overtime raises FICA in proportion to pay. Ask your insurer how overtime premium is treated in your workers' comp payroll.

How does your number compare with construction industry data?

The Bureau of Labor Statistics measures employer costs per hour worked. For the construction industry in June 2026, wages and salaries averaged $36.13 an hour and benefits $15.84, so benefits added about 44% on top of wages (BLS, Employer Costs for Employee Compensation, Table 4).

Construction industry employer costs per hour worked, June 2026
Component	Cost per hour	Share of compensation	As % of wages (calculated)
Wages and salaries	$36.13	69.5%	100%
Legally required benefits	$4.42	8.5%	12.2%
Insurance	$3.90	7.5%	10.8%
Paid leave	$2.63	5.1%	7.3%
Supplemental pay	$2.49	4.8%	6.9%
Retirement and savings	$2.39	4.6%	6.6%
Total benefits	$15.84	30.5%	43.8%

Source: BLS ECEC, June 2026. The last column divides each cost by $36.13. BLS counts supplemental pay (which includes overtime premiums) and paid leave as benefits, and averages union and non-union employers across the country, so your own figure can sit well above or below it.

In the worked example, the legally required items (FICA, FUTA, SUTA and workers' comp) come to $11,884.40, or 14.3% of wages, close to the BLS figure. If your number is far off, check your workers' comp classification and whether you left a component out.

How to calculate labor burden, step by step

Work one worker or one crew classification at a time, on a full year.

1
Annual wages
Hourly rate × paid hours for the year, including paid time off and holidays.
2
Payroll taxes
Employer FICA at 7.65% (Social Security capped at the wage base), FUTA on the first $7,000, SUTA at your rate on your state's wage base.
3
Workers' comp
Payroll ÷ 100 × the class rate × your experience mod. Use the right classification code for the work, not the lowest one.
4
Benefits
Employer share of health premiums, retirement contributions and any union fringe contributions.
5
Burden percentage
Total of steps 2 to 4 ÷ annual wages.
6
Productive hours
Paid hours minus paid time off, holidays and measured non-productive time.
7
Loaded rate
(Wages + burden) ÷ productive hours. Use this to cost jobs and price time and materials work.

To run your own numbers, use the labor burden calculator.

What are the common labor burden mistakes?

Most errors come from the hours, not the tax rates. Check these before you put a loaded rate in a bid.

Dividing by 2,080 paid hours instead of the hours that reach a job.
Adding paid time off as a separate cost when it is already inside annual wages (counting it twice).
Annualizing a January payroll, when unemployment taxes are at their highest.
Using last year's SUTA rate or workers' comp mod after a renewal changed it.
Guessing non-productive time instead of measuring shop time, training and unbilled travel.
Using one company-wide burden for apprentices, journeymen and foremen with different benefits.

How ZeroBadge handles this

ZeroBadge does not calculate your taxes or insurance. It supplies the hours side of the equation. Each worker's shift is recorded by a company-managed badge and every minute is classified as on site, in transit or other, and allocated to a jobsite, the shop or a supplier stop. That gives you measured non-productive time instead of a guess.

Office admins enter a loaded rate per worker, and ZeroBadge shows labor cost by job from badge-recorded hours. A worker with no rate shows as unknown cost, never as zero. See labor cost tracking.

Frequently asked questions

What is a typical labor burden percentage in construction?

It depends on benefits, workers' comp class and how you count hours. BLS data for the construction industry in June 2026 put total benefits at about 44% of wages, with legally required costs about 12%. The worked example on this page lands at 29.5% on paid hours and 46.8% on productive hours.

Is paid time off part of labor burden?

Yes, but count it once. If your annual wages already include paid vacation and holidays, do not add them again as a cost. Instead, take those hours out of the hours you divide by, which raises the loaded rate per productive hour.

Do I include overtime in labor burden?

Calculate burden on straight-time wages, then cost overtime separately at the premium rate plus the taxes that move with pay, such as FICA. Ask your workers' comp carrier how overtime premium is treated, since rating rules differ.

Why is my loaded rate higher than my burden percentage suggests?

Because the burden percentage is measured against all paid wages, while the loaded rate spreads the full cost over fewer, chargeable hours. Every hour of paid time off, shop time or training raises the loaded rate without changing the total cost.

How often should I recalculate labor burden?

At least once a year, when payroll tax wage bases change, and whenever your workers' comp policy renews, your state assigns a new unemployment rate, a union agreement changes fringe rates or health premiums change.

Sources

1.Topic no. 751, Social Security and Medicare withholding rates (6.2%, 1.45%, 2026 wage base) · Internal Revenue Service
2.Topic no. 759, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return · Internal Revenue Service
3.Notice of the FUTA Credit Reductions Applicable for 2025 (FR Doc. 2026-00342) · U.S. Department of Labor, Employment and Training Administration
4.FUTA credit reductions · U.S. Department of Labor
5.State unemployment insurance law information (rates and taxable wage bases by state) · U.S. Department of Labor
6.Employer Costs for Employee Compensation, Table 4, private industry by industry group, June 2026 · U.S. Bureau of Labor Statistics