Burdened labor rate calculator

How the burdened rate is worked out

The calculator uses one simple chain. Every input is visible, so you can check it by hand.

1. Burdened wage for each person = hourly wage x (1 + payroll burden %).
2. Billable hours = hours per week x weeks per year x billable %.
3. Unbillable cost = burdened wage x the paid hours that never reach a job.
4. Overhead per job hour = (fixed overhead + unbillable cost) / total billable hours.
5. Break-even rate = overhead per job hour + average burdened wage per job hour.
6. Target rate = break-even / (1 - target margin).

Worked example: a two-person electrical shop

The sample numbers above are an owner at $45 an hour with a 10% burden, working 40 hours a week for 52 weeks with 60% of it billable, plus a journeyman at $32 an hour with a 25% burden, 40 hours a week for 50 weeks at the 65% electrical preset. Fixed overhead is $45,000 a year.

• Billable hours: 1,248 + 1,300 = 2,548 a year.
• Unbillable time costs $69,184, so total overhead to recover is $114,184.
• Overhead per job hour: $44.81. Average burdened wage: $44.65.
• Break-even: $89.47 per job hour. At a 15% margin the target is $105.25.

Notice how much the unbillable hours matter: they cost this shop more than its rent, vehicles and insurance put together.

Why your hourly rate is probably too low

If you set your rate from what other shops charge, or from wages plus a rough guess, one of these is usually missing:

• Unbillable hours. Quotes, supply runs, shop time, callbacks and warranty work are paid hours that no customer pays for.
• Labor burden. Payroll taxes, workers comp and benefits sit on top of every dollar of wages.
• Your own wage. If the owner's time is free in the maths, the business only looks profitable because you work for nothing.
• Overhead you pay once a year. Insurance renewals, licenses, truck repairs and software are easy to forget when you think in hourly terms.

The calculator above counts all four. If the result is well above what you charge now, check the billable % first: a few points either way moves the rate more than most people expect.

What is labor burden?

Labor burden is everything an employee costs you on top of their hourly wage. The labor burden rate is that cost as a percentage of wages. A $32 an hour journeyman with a 25% burden really costs you $40 an hour before any overhead.

Typical labor burden costs

• Social Security and Medicare (FICA): the employer pays 6.2% Social Security (up to the yearly wage base) plus 1.45% Medicare, 7.65% in total. Source: IRS Topic 751.
• Federal unemployment (FUTA): 6.0% of the first $7,000 per employee, usually reduced to 0.6% by the state credit, so about $42 a person a year. Source: IRS Topic 759.
• State unemployment (SUTA): your state sets your rate and wage base, often based on your layoff history.
• Workers' compensation: priced per $100 of payroll by trade class and state. Field trades cost far more than office staff, so ask your insurer for your actual rate.
• Benefits: health insurance, retirement match and any other benefits you pay.
• Paid time off: paid holidays and vacation. Count them either in the burden % or as paid weeks in the crew table, not both.

General liability insurance, trucks and tools are business overhead, not labor burden. In this calculator they go in step 2.

Labor burden rate formula

Labor burden rate = yearly employer costs on top of wages / yearly wages

Example for one journeyman at $32 an hour and 2,000 paid hours ($64,000 in wages). FICA and FUTA follow federal rules; the other lines are made-up numbers to show the method, not survey data.

So the burdened wage is $32 x 1.25 = $40.00 an hour. That is the 25% used for the journeyman in the sample shop.

Burdened labor rate, labor burden rate and fully burdened rate

These terms get mixed up, so here is how this page uses them:

• Labor burden rate: the burden as a % of wages (25% above).
• Burdened wage: wage x (1 + burden %), what one paid hour costs you ($40.00 above).
• Fully burdened labor rate: burdened wage plus overhead and unbillable time, spread over billable hours. This is the calculator's break-even.
• Billing rate: the fully burdened rate plus profit. This is the calculator's target, the contractor hourly rate to quote.

Job costing: did the job make money?

Your burdened rate tells you what an hour must earn. Job costing checks whether a finished job actually earned it: take what the customer paid, subtract materials and subs, then subtract the job hours at your full break-even rate, not just wages.

Job net profit = price - materials and subs - (job hours x break-even rate)

Example from the sample shop: a $2,400 job with $700 of materials and 16 job hours, drive time included.

• Counting only wages and burden ($44.65 an hour), it looks like it made $986.
• Add its share of overhead (16 hours x $44.81 = $717) and the real net profit is $269, a margin of 11% against a 15% target.

One job like that is survivable. A season of them is a busy year with little left over. On trade forums, owners often say they tried a job log but stopped keeping it once the season got busy. The Job Profit Tracker does this sum for every job from phone-logged hours, and the Quote Calculator runs the same check before you send a price. Want to check one of your own jobs now? Use the free job costing calculator.

Questions

What is a burdened labor rate?

It is what one hour of work really costs your business: the wage plus payroll taxes, workers comp and benefits (the burden), plus a share of your overhead. If you charge less than your burdened rate, every hour you work loses money.

Why do unbillable hours count as overhead?

You pay your crew for quotes, supply runs, shop time and callbacks, but no customer pays for those hours. Their cost has to be recovered by the hours that do get billed. That is why most small shops find their real rate is higher than they think.

What billable percentage should I use?

Start with the trade preset, then check your own timesheets. Many small shops land between 55% and 75% of paid hours on a job. The presets here are starting points, not survey data.

What is the difference between break-even and target rate?

Break-even covers wages and overhead with zero profit. The target rate adds your profit margin on top: break-even divided by (1 minus margin). Quote at the target rate, never below break-even.

Does this include materials?

No. This is the labor rate per job hour. Price materials, permits and subcontractors separately and add your markup on them.

How do I calculate my labor burden rate?

Add up a year of employer costs on top of wages for one person (payroll taxes, unemployment, workers comp, health insurance, retirement match) and divide by that person's yearly wages. $16,000 of burden on $64,000 of wages is a 25% labor burden rate.

What is a fully burdened labor rate?

It is the wage plus labor burden plus a share of overhead, including the cost of paid hours that never reach a job. In this calculator that is the break-even rate. Add your profit margin and you get the target rate to quote.

Can I use this as a contractor hourly rate calculator?

Yes. The target rate is the hourly labor rate to charge per job hour for your crew. It is built from your own costs, so it will differ from what other shops charge in your area. Compare the two before you set prices.

How often should I update my rate?

At least once a year, and any time wages, insurance, vehicles or crew size change. A raise for one employee or a new truck payment can move your break-even by several dollars an hour.

Is my data saved or sent anywhere?

No. The calculator runs in your browser. Nothing you type is stored or sent to a server.