How to Calculate Labor Burden
The formula, a worked example, and the one mistake most people make.
Labor burden is everything you pay to employ someone beyond their base wage — payroll taxes, workers' comp, benefits, and overhead. The burden rate expresses those extra costs as a percentage of base pay, and the true hourly cost is what one productive hour of that person actually costs you. Getting these numbers right is the foundation of profitable pricing.
The formula
Burden rate % = (labor burden $ ÷ base pay) × 100
True hourly cost = (base pay + labor burden $) ÷ productive hours
Step by step
- Start with base pay. Hourly rate × scheduled hours, or the annual salary.
- Add employer payroll taxes. Social Security (6.2%), Medicare (1.45%), FUTA, and your state's SUTA rate (details).
- Add workers' compensation. Use your class-code rate per $100 of payroll — small for office work, large for trades (details).
- Add benefits and retirement. The employer share of medical, dental, vision, life, disability, HSA/FSA, and any 401(k) match (details).
- Add overhead and year-one costs. Facilities, equipment, software, tools, training, recruiting, and onboarding.
- Find productive hours. Scheduled hours minus paid time off, holidays, and sick days. This is the step most people skip (why it matters).
- Divide. Total cost ÷ productive hours = true hourly cost. Labor burden ÷ base pay = burden rate.
Worked example
| Item | Amount |
|---|---|
| Base pay ($25/hr × 2,080) | $52,000 |
| Labor burden (taxes, comp, benefits, overhead) | ~$28,000 |
| Total annual cost | ~$80,000 |
| Productive hours (2,080 − 208 PTO) | 1,872 |
| True hourly cost | ~$43/hr |
| Burden rate | ~54% |
The mistake to avoid
Dividing by the full 2,080 hours instead of productive hours understates your true hourly cost, because you're spreading the cost across hours you paid for but didn't get work from. Always subtract PTO first. A second common error is leaving out overhead and one-time costs, which can be 20%–30% of the burden on their own.
Using your burden rate as a shortcut
Once you know your typical burden multiplier (say 1.5×), you can estimate any new hire's fully-loaded cost in seconds: multiply the wage by the multiplier. It is the fastest sanity check when someone asks "what will this person really cost?" Just remember that trades and office roles have different multipliers — see labor burden by industry for typical ranges.
Calculate your burden rate now →