A $28-per-hour employee does not cost your company $28 per hour. Once you add payroll taxes, workers' comp, benefits, paid time off, and other employer costs, that crew member may cost $40 or more for every productive hour on the job. Knowing how to calculate labor burden gives you the real number you need to estimate work, set rates, and stop winning jobs that do not make money.
For subcontractors, labor burden is not an accounting exercise you do once a year. It belongs in every estimate. If your burden number is off, your labor budget is off before the crew ever rolls out.
What labor burden actually includes
Labor burden is the cost of employing someone beyond their base wage. Some costs are required by law. Others are part of the compensation package you offer to hire and keep good people.
For most subcontractors, the main costs include employer payroll taxes, federal and state unemployment taxes, workers' compensation insurance, health insurance, retirement contributions, paid holidays, PTO, sick time, and paid training. Depending on your operation, you may also include uniforms, vehicle allowances, tool allowances, bonuses, per diem, or required certifications.
The right list depends on your company and trade. A concrete contractor with a high workers' comp rate will carry a different burden than an office-heavy electrical contractor. The goal is not to use a generic industry percentage. The goal is to use your actual costs.
Do not confuse labor burden with overhead or profit. Office rent, estimating salaries, software, shop expenses, and owner compensation may be part of overhead. Markup and profit come after you know your true job cost. Labor burden is specifically tied to the cost of employing and keeping a worker.
How to calculate labor burden step by step
Start with one employee or one labor classification. A foreman, journeyman, and helper often have different wages, benefits, and workers' comp classifications. If your crews are similar, you can also calculate an average burden rate across the field team.
1. Find annual direct wages
Multiply the employee's hourly wage by the hours you pay them during the year. A full-time employee paid $28 per hour for 2,080 hours has annual direct wages of:
$28 × 2,080 = $58,240
This includes paid hours, not just hours spent installing work. That distinction matters later.
2. Add every annual employer cost
Pull these numbers from payroll reports, insurance bills, benefit invoices, and your bookkeeper. For this example, assume the employee has the following annual employer costs:
- Employer FICA taxes: $4,455
- Federal and state unemployment taxes: $1,050
- Workers' compensation: $7,000
- Health insurance contribution: $6,000
- Retirement contribution: $1,200
- Paid holidays, PTO, and training: $3,360
The total additional employment cost is $23,065.
The paid-time number deserves attention. A worker may be paid for holidays, PTO, safety meetings, and training but cannot produce job revenue during those hours. If you calculate annual wages using all 2,080 paid hours, make sure paid nonproductive time is accounted for once, not twice.
3. Calculate the labor burden percentage
Use this formula:
Labor burden percentage = Total additional employer costs ÷ Annual direct wages × 100
For the example:
$23,065 ÷ $58,240 × 100 = 39.6%
That means this employee's labor burden is 39.6% of their direct wage. A $28 base wage has roughly $11.09 per paid hour in added employment costs before you account for lost productive time.
This percentage is useful for quick estimating. If your average field labor burden is 40%, a $30 wage becomes $42 per paid hour before overhead and profit.
4. Calculate the fully burdened productive hourly cost
This is the number that matters most when pricing a job.
First, calculate productive hours. If the employee is paid for 2,080 hours but spends 56 hours on holidays, 40 hours on PTO, and 24 hours in paid training, they have 1,960 productive hours available for job work.
Next, add direct wages and additional employer costs:
$58,240 + $23,065 = $81,305 total annual labor cost
Then divide by productive hours:
$81,305 ÷ 1,960 = $41.48 per productive hour
Your employee making $28 per hour actually costs $41.48 for each productive hour you can assign to a job. That is the labor cost that should feed your estimate.
Use the number correctly in your estimates
A fully burdened labor cost is not your billing rate. It is your starting point.
Say a masonry crew needs 180 productive hours to complete a wall. Using the example above, direct labor cost is:
180 hours × $41.48 = $7,466.40
From there, add materials, equipment, subcontractors, job-specific costs, company overhead, and your target profit. If you only estimate that wall using the $28 wage, you are short by more than $2,400 before overhead and profit. That gap can wipe out the margin on a small job fast.
For prevailing wage work, union work, or certified payroll, calculate burden by the actual classification and benefit requirement. Do not blend a high-cost classification with lower-paid labor just because it makes the estimate look better. The job will expose the mistake.
Common mistakes that underprice labor
The most common mistake is using a flat percentage from an old spreadsheet. A 25% burden rate may have been accurate three years ago, but insurance renewals, wage increases, and benefit changes move the number quickly.
Another mistake is dividing annual labor cost by 2,080 hours. That assumes every paid hour produces revenue. Crews do not install pipe, set forms, or hang drywall on holidays, during paid training, while waiting on a site, or when handling required meetings. Your available productive hours may be lower than you think.
It is also easy to bury workers' comp in overhead. Workers' comp rises and falls with payroll and trade classification, so it belongs in labor burden. Keeping it there gives you a cleaner view of which jobs and crew types are truly profitable.
Finally, do not add markup to base wages. Apply overhead and profit after you have calculated your fully burdened labor rate. Marking up an incomplete cost only makes an incomplete number bigger.
Keep labor burden current without making it complicated
Review your labor burden at least twice a year and any time a major cost changes. Workers' comp renewals, health plan changes, payroll tax updates, raises, new benefit policies, and extra paid time all affect the rate.
You do not need a complicated process. Keep your wage rates, paid hours, payroll costs, and benefit costs in one place. Then make sure the same current labor rates flow into estimating and job-cost tracking. If the office is pricing work from one spreadsheet while field time is tracked somewhere else, small errors turn into expensive surprises.
A field-friendly system such as SimplySub can help subcontractors capture crew time by job and compare actual labor against the estimate while work is still underway. That gives you a chance to fix production issues before they become the final job-cost report.
Labor burden will never be the exciting part of running a subcontracting business. But knowing the real cost of an hour of field labor lets you bid with confidence, protect your margin, and make better decisions before the job gets away from you. See how SimplySub can help by scheduling a demo.
