You pay a guy $25 an hour. He does not cost you $25 an hour. Here is the whole calculation, worked through on a real crew, and what to do with the number once you have it.
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Short answer: labor burden is everything you pay to keep a man on the clock on top of his wage. Employer Social Security and Medicare, federal and state unemployment, workers comp, plus the truck, fuel, phone and tools that ride along. Add a year of it to his wages, then divide by the hours he actually spends on paying work, not by 2,080. In the example below a $25 an hour employee costs $32.88 an hour, about 32% more. Your number will be different, and the only way to know it is to run your own.
Most guys running a small crew price labor off the wage. Four men, eight hours, $25 an hour, so the labor on that job is $800. It is a clean number and it is wrong, and the gap is not small enough to shrug at. On a job where you thought you had 20% in it, a burden you never counted can eat most of that before you have loaded a single tool in the truck.
The reason it hides so well is that none of it shows up on the job. It shows up as a payroll tax deposit, an insurance premium, and a fuel card, all of them monthly, none of them attached to the job that caused them. So the job looks fine and the bank account does not, and nobody can point at the reason.
Six lines. Two are fixed by law and you can look them up in a minute. Four are yours, and they are the ones that move the answer.
| Line | Who sets it | Where you find your real number |
|---|---|---|
| Social Security and Medicare 7.65% of wages, employer side | Federal, fixed | Your payroll report. The Social Security half stops once a worker crosses the annual wage base, which almost nobody on a small hourly crew reaches. |
| Federal unemployment (FUTA) 0.6% of the first $7,000 per employee | Federal, fixed | Your Form 940. That 0.6% assumes your state is in good standing with the federal fund. A few states are not in a given year, which pushes it up, so check before you assume. |
| State unemployment (SUTA) | Your state, and your own layoff history | The rate notice your state mails you every year. Lay men off in the winter and this climbs. |
| Workers comp | Your class code and your carrier | The declarations page of your policy. This is the single biggest swing factor. Roofing, framing and tree work are in a different world from a service van. |
| Paid time off and holidays | You | Your own handbook. You pay for these hours and no customer does. |
| Truck, fuel, phone, tools, uniforms | You | Your bank statement. If hiring one more man means one more truck payment, that truck is burden. |
What is not on this list matters too. General liability, your office, your own time quoting work: that is overhead, and it is a separate line in the price. Some contractors fold overhead into the burdened rate, some carry it as a percentage of the contract. Either is fine. Counting it twice or not at all is what kills you.
One employee, $25.00 an hour, 2,080 paid hours in the year. The federal lines are exact. The other three are marked as examples, because yours will not match and copying them would defeat the point.
| What | How it is figured | Per year |
|---|---|---|
| Base wages | 2,080 hours × $25.00 | $52,000 |
| Social Security and Medicare | 7.65% of $52,000 | $3,978 |
| Federal unemployment | 0.6% of the first $7,000 | $42 |
| State unemployment (example) | from your rate notice | $500 |
| Workers comp (example) | $8.00 per $100 of payroll | $4,160 |
| Truck, phone, tools, uniforms (example) | his share of the fleet and the phone bill | $1,800 |
| Total cost of that employee | $62,480 |
Now the half nearly everyone gets wrong. Do not divide by 2,080.
2,080 paid hours, minus 88 hours of holidays and paid time off (11 days), minus about 92 hours of rain days, shop time and running for parts, leaves 1,900 hours that a customer actually pays for.
$62,480 ÷ 1,900 = $32.88 an hour, against a wage of $25.00. About 32% on top.
Push the comp rate up for a roofing class code and that number climbs fast. Drop the truck and run a service van shared four ways and it falls. Thirty-two percent is not a rule of thumb to memorise, it is what this particular guy costs. The rule of thumb worth keeping is simpler: the gap is real, it is measured in dollars per hour, and it is bigger than the margin most small contractors think they are holding.
Once you know a man costs you $32.88 an hour, there are only two honest places to put it, and mixing them is how a job reads profitable when it is not.
Use the burdened rate when you build the labor side of a price. Four men, eight hours, $32.88 is $1,052 of labor, not $800. Then add materials, then add your profit on top of that.
Put the burdened rate into whatever you cost jobs with, so the labor number on a live job is the real one. Then your bid can stay in plain wage terms.
Doing both means you have counted burden twice and you will bid yourself out of work wondering why everyone is cheaper than you. Doing neither means you find out in April. Pick one, write it down, and make sure whoever prices work knows which one you picked.
JobTally is job costing for a small crew. It works out each job's labor cost as hours worked multiplied by the hourly rate you set on that worker, and it does that from real clock-ins rather than a timesheet somebody rebuilt on Friday. You set a worker's rate on the invite you text him, and you can change it later on the Workers tab. If a worker has no rate set, the app tells you so on the job, because a man at $0.00 an hour makes every job look better than it is.
Here is the honest caveat, and it decides which of the two options above you should choose:
That one rate does two jobs. It drives the job's labor cost, and it also drives the "this week" pay estimate your crew member sees in his own app. Load burden into it and he sees a number noticeably bigger than his check. Most owners keep the real pay rate in JobTally and carry burden in the price they bid. That is the setting that does not start an argument on payday.
The rest of the cost side is already covered. Receipts go in by photo and get sorted into materials, fuel, tools, permits, subcontractor, supplies, insurance, meals or other, so the fuel and tools half of your burden is trackable per job if you want it there. Mileage entries default to the IRS standard business rate and you can edit the rate per trip. Each job holds a materials budget, a labor budget and a profit target, and the contract price is those three added together, so the shape of the estimate is the shape of the job costing. Live profit is the price charged minus materials, labor and other, updated as the job runs. Everything exports to CSV when your accountant wants it.
If you just want to test a single job before you commit to anything, put your last finished job into JobTally. One job is free, forever, with no card. Enter the contract price, the hours your crew actually worked and the receipts, and it gives you the real number. The loaded rate it uses is exactly the $32.88 you worked out above.
Set your crew's rates once, and every job costs itself from then on. Setup takes about five minutes.
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Labor burden is everything you pay to have an employee on the clock beyond his wage: the employer half of Social Security and Medicare, federal and state unemployment tax, workers comp, and the truck, phone, tools and uniforms that come with keeping a man working. Add it to the wage and divide by the hours you actually bill, and you get the real cost of one hour of that guy's time.
Add up a year of everything that employee costs you: wages, the 7.65% employer share of Social Security and Medicare, federal unemployment, state unemployment, workers comp, and his share of truck, fuel, phone and tools. Then divide that total by the hours he actually works on paying jobs, not by 2,080. The answer is your burdened hourly cost.
There is no single right number, because workers comp and state unemployment move it more than anything else and both depend on your trade, your state and your claims history. Roofing and framing land far higher than a service van. Run your own payroll and insurance numbers instead of copying a percentage. The worked example on this page lands at about 32% on top of a $25 an hour wage.
In JobTally the rate you set on a worker does two jobs: it drives that job's labor cost, and it drives the estimate of this week's pay that the worker sees in his own app. If you load burden into it, he sees a number bigger than his check. Most owners keep the real pay rate in the app and carry burden in the price they bid. Pick one and stay consistent.
$150 a month or $1,200 a year (4 months free), every feature, unlimited crew. One job is free forever, with no card.
Nothing on this page is tax or legal advice. Rates and wage bases change, so check yours against your own payroll reports, your state rate notice and your insurance declarations page.