Your labor burden rate is the cost of employing a worker, beyond wages, shown as a percentage of those wages. Add up a year of burden costs, divide by a year of gross wages, and multiply by 100. Then apply that rate to every hourly wage you bid. If you skip this step, every bid you write is priced below your real cost.
This guide is for owners, estimators and office managers at electrical, plumbing, HVAC, masonry, drywall, framing and other specialty trade firms. It covers what goes in the burden pool, the formula, a full worked example, the paid-hours trap, and how to use the number to check jobs while they are still open.
TL;DR
- Labor burden rate = total annual burden costs ÷ total annual gross wages × 100.
- Fully burdened hourly rate = base wage × (1 + burden rate), then divided over productive hours, not paid hours.
- In our example, a $30 electrician costs $39.50 per paid hour but $45.64 per productive hour.
- Workers' comp usually swings your rate more than anything else, so calculate by trade class, not one company-wide number.
- Use the burdened rate in every labor unit, then compare budgeted and actual hours on open jobs.
Table of Contents
- What labor burden means for a trade firm
- How to calculate your labor burden rate
- A worked example: one electrician at $30 an hour
- The paid-hours trap: use productive hours
- Is 20% high? What is a normal burden rate?
- Carry the burdened rate into your estimates
- Labor variance and production variance on open jobs
- Getting clean hours from the field
- Perspective
- Put the rate to work in your workflow
- A yearly burden routine for a small shop
- FAQ
- Sources
What labor burden means for a trade firm
Labor burden is what you pay because someone is on your payroll, on top of what shows on their paycheck. A construction business guide from JLC lists the usual pieces: payroll taxes, workers' comp, liability insurance, benefits such as retirement, health and dental, other field costs such as vehicles and phones, and paid time off.
In plain terms, the burden pool usually holds these items:
- Payroll taxes: employer FICA, federal unemployment (FUTA) and state unemployment (SUTA).
- Workers' compensation: charged as a percentage of payroll by class code, and affected by your experience modifier.
- General liability: the part of the premium tied to labor payroll.
- Benefits: employer share of health, dental, retirement match, and union fringes if you have them.
- Field costs tied to the person: truck allowance, phone, tools, PPE, training and certifications.
- Paid time off: holidays, vacation and sick days. How you count this matters, and we cover it below.
What stays out: your markup, your profit, and costs that have nothing to do with employee pay. Office rent, estimating software and the owner's truck belong in overhead. If you push them into burden and then add overhead again on the bid, you double-count and lose jobs you should win.
How to calculate your labor burden rate
Use last year's actual numbers. Do it per trade class if your workers' comp codes differ, for example one rate for journeyman electricians and another for apprentices or helpers.
- Pull gross wages. Add all field payroll for the year, including overtime and paid time off.
- Add up burden costs. Employer taxes, comp premium, liability on payroll, benefits, and the person-related field costs from the list above.
- Divide. Burden costs ÷ gross wages.
- Multiply by 100 to get the percentage.
- Apply it. Base wage × (1 + burden rate) gives a fully burdened rate per paid hour.
For a quick check on a new hire, use the same math on an annual basis: what will this person's wages be, what will I pay on top, and how many hours will I actually bill?
A worked example: one electrician at $30 an hour
These figures are illustrative, built to show the method. Replace them with your own invoices and payroll reports.
| Item | Annual cost |
|---|---|
| Gross wages: $30 × 2,080 paid hours | $62,400 |
| Payroll taxes (FICA, FUTA, SUTA) | $6,600 |
| Workers' comp at 10% of payroll | $6,240 |
| General liability on payroll | $1,250 |
| Health insurance, employer share | $4,160 |
| Phone, tools, PPE, training | $1,500 |
| Total burden | $19,750 |
| Total employment cost | $82,150 |
Burden rate: $19,750 ÷ $62,400 = 31.65%, or about 31.7%.
Fully burdened rate per paid hour: $30 × 1.3165 = $39.50.
That $39.50 is a fine number for payroll reports. It is the wrong number for a bid, and the next section shows why.
The paid-hours trap: use productive hours
You pay for 2,080 hours a year per full-time worker. You cannot bill all of them. Holidays, vacation, sick days, safety meetings, shop time and training are paid but not charged to a job.
Say our electrician has 280 such hours, leaving 1,800 productive hours. Divide the same $82,150 by 1,800:
$82,150 ÷ 1,800 = $45.64 per productive hour.
That is $6.14 an hour more than the paid-hour figure. Over 1,800 hours, bidding at $39.50 leaves you about $11,000 short on this one person, before overhead and profit even enter the picture.
Two rules keep this clean:
- Pick one basis and stay on it. Either spread paid time off through the productive-hours divisor, or load it into the burden pool as a cost. Not both. Doing both counts the same vacation twice.
- Match the rate to the hours you estimate. If your labor units cover only installation hours, productive hours is the right divisor. Material handling, mobilization and rework still need allowances in the units or in a separate factor. Our guide to labor productivity factors covers how to price those.
Is 20% high? What is a normal burden rate?
You will see people quote ranges for construction burden, and 20% is a common starting guess for people who only count taxes. For most trade firms with workers' comp and health benefits, the true rate lands higher than that. The honest answer is that no single benchmark fits you.
What moves your number:
- Trade and class code. Roofing and framing carry far higher comp rates than low-voltage or painting.
- Experience modifier. A mod above 1.0 raises your premium, and a mod below 1.0 lowers it.
- State. Unemployment rates and comp rules differ by state.
- Benefits. An employer paying most of a family health plan runs a different rate than one offering none.
- Union or prevailing-wage work. Required fringes can push burden well above a merit-shop rate.
The practical move: calculate your own rate every year, and again whenever your comp renewal or health plan changes. A rate set in 2022 and never touched is a common reason a busy shop is not making money.
Carry the burdened rate into your estimates
The burdened rate has one job in the estimate: to price labor at your true cost. It is not your billing rate. Overhead and profit get added after.
Here is how it flows into labor units, using the $45.64 productive rate:
- An electrical labor unit of 0.25 hours per receptacle costs $11.41 per receptacle in labor.
- A masonry or drywall unit of 0.5 hours per piece costs $22.82 in labor.
If you carry units in hours and multiply by the rate at the end, a rate change takes one cell, not a rebuilt workbook. For trade-specific unit examples, see our posts on electrical labor units and labor units for masonry estimators.
A real-world sense of the stakes: an accounting firm's job costing guide for trades gives the example of an electrician paid $35 an hour who truly costs $48 once state unemployment, FICA and workers' comp are loaded in. Bidding that person at $35 is a loss on day one.
Labor variance and production variance on open jobs
Once the burdened rate is in your budgets, you can see what the field is doing against the estimate. There are two checks, and they answer different questions.
Labor variance compares hours or dollars budgeted with hours or dollars used. Budgeted minus actual: a positive number is good, a negative number is trouble.
Production variance compares the rate of work. Quantity installed per hour, budgeted against actual. It tells you why hours ran over.
Example: a conduit run is budgeted at 1,200 linear feet at 12 feet per hour, or 100 hours. The crew finishes in 125 hours, which is 9.6 feet per hour.
- Hours variance: 100 − 125 = −25 hours.
- Dollar variance at $45.64: −25 × $45.64 = −$1,141.
- Production variance: 9.6 − 12 = −2.4 feet per hour, 20% slower than budget.
A second case: a drywall crew budgets 400 hours on a floor and logs 460. That is 60 hours over, or $2,738.40 at the same rate. Our cost code variance walkthrough shows how to find a gap like that by cost code before the job closes.
Keep the unit consistent. Track variance in hours for crew performance and in dollars for profit. Mixing them in one report is how people read a good number as bad and the reverse.
Why variances go unfavorable
The usual suspects on trade jobs, from what we see in the field:
- Labor units that were too tight for the conditions: occupied space, high ceilings, tight access.
- Rework and waiting on other trades or on RFI answers.
- Time spent getting materials to the work area.
- A crew mix richer in apprentices, or in higher-paid journeymen, than the estimate assumed.
- A burden rate that was out of date when the bid was priced.
Separate the causes. If hours are fine but dollars are over, look at the rate. If hours are over, look at production and site conditions. Then feed what you learn back into your units. Our guides on crew productivity tracking and measuring crew productivity give practical methods.
Getting clean hours from the field
The burden math is only as good as the hours behind it. If a foreman fills in timecards from memory on Friday, cost codes are guesses and your variance reports are fiction. Daily entry on a phone, by cost code, fixes most of it. See how foremen track crew hours on the job site for a routine that works.
Perspective
We have run trade businesses, and the most expensive mistake we saw was a good estimator using a bad labor rate. The takeoff was careful, the units were solid, and the wage was the number on the paycheck. Every job looked healthy until the books closed.
Burden is not hard math. It is a once-a-year habit plus a system that keeps the result in front of the estimator. That is how we built Subascent: one place where the rate, the labor units, the crew's daily hours and the job budget live together, so a change in your comp premium shows up in the next bid and in the jobs already running.
General contractor software is built to manage a whole project. A sub needs to know one thing fast: is this job making money this week? Bid tracking, estimating, field reporting, labor tracking and profit analytics for specialty trades, with QuickBooks sync, is how we answer that.
Dave
Put the rate to work in your workflow
If you want burden, hours and budgets in one place, Subascent is job and bid management software built for specialty trade subs. Plans are Starter at $49 per month, Scale at $99 per month and Pro at $179 per month, with annual billing at $490, $990 and $1,790. PDF takeoff is a separate add-on at $99 per month. The CrewTrack mobile app for foremen comes with your subscription, so field hours land by cost code without a Friday scramble.
See the plans and what each includes on the Subascent pricing and features page, or start from the Subascent home page. For the formula in its short form, our labor burden calculation guide for trade subs is a quick reference, and our list of electrical job costing mistakes shows where unburdened labor tends to hide.
A yearly burden routine for a small shop
You do not need a finance team. Block two hours each January and again at comp renewal.
- Export last year's field payroll by class code.
- Gather the comp audit, GL audit, health invoices and tax filings.
- Calculate a burden rate per class.
- Count productive hours: 2,080 minus holidays, average PTO and sick use, training and meetings.
- Compute the fully burdened productive rate for each wage tier.
- Update the rates in your estimating template and in your job budgets.
- After 60 days, compare open-job labor variance against the new rates and adjust.
A new hire or a wage raise changes the base, and you can recompute in a minute with the formula above. A comp renewal or a mod change is a bigger event: update the rate the same week.
FAQ
How do I calculate the labor burden rate?
Divide your total annual burden costs (taxes, comp, insurance, benefits and person-related field costs) by total annual gross wages, then multiply by 100. In our example, $19,750 ÷ $62,400 gives about 31.7%. Do it by trade class when comp rates differ.
What does fully burdened labor rate mean?
It is your true cost per hour for a worker: wages plus every employer-paid cost tied to that person. It excludes markup and profit. For bids, divide total cost by productive hours, not paid hours.
Is a 20% labor burden high?
For most trade firms that carry workers' comp, liability and some benefits, 20% is more likely too low than too high. Your own number depends on your class codes, experience modifier, state and benefits. Calculate it from your actual payroll and insurance records.
What is the difference between labor variance and production variance?
Labor variance compares budgeted and actual hours or dollars. Production variance compares budgeted and actual output per hour, such as feet of conduit or sheets hung. Labor variance shows how much you lost, and production variance helps show why.
Sources
- JLC Business: labor burden components for construction firms
- AG Freideman: payroll job costing guide for trades