Burdened vs Direct Labor Rate: What Goes Into Each and How to Calculate Burden

A carpenter you pay $30.00 an hour costs your company a good deal more than $30.00 for every hour on the job. Employer payroll taxes, workers' compensation, liability insurance, benefits and paid time off all ride on top of the wage. Together they are the labor burden. An estimate that prices labor at the wage alone is short by that amount on every hour in the bid. This guide separates the direct rate from the burdened rate, works out a burden percentage step by step, and covers where to carry burden in a bid, including on prevailing wage jobs.

Direct rate and burdened rate

• Direct labor rate (also called the base or unburdened rate): the hourly wage you pay the worker, before anything the employer adds.
• Burdened labor rate (also called the fully loaded rate): the direct rate plus every cost that follows from employing that worker for an hour of production.

Burden is not overhead and it is not profit. The office rent, the estimator's salary and the company truck fleet belong in overhead. Burden is the cost that rises and falls with payroll hours. Some firms also put small tools, safety gear or crew vehicles into burden; that is a reasonable choice as long as you decide it once, write it down, and do not count the same cost again in overhead.

What goes into labor burden

Payroll taxes: FICA, FUTA and SUTA

• FICA. The employer pays Social Security tax of 6.2% on wages up to an annual wage base that changes each year, plus Medicare tax of 1.45% on all wages. That is 7.65% on most construction wages. The employee's matching share is withheld from their pay and is not a cost to you.
• FUTA. The federal unemployment tax is 6.0% on the first $7,000 of each employee's wages in a year. Employers who pay their state unemployment tax on time generally get a credit of up to 5.4%, which leaves 0.6%, or $42 per employee per year. Employers in a state with a credit reduction pay more.
• SUTA. State unemployment tax. Each state sets its own taxable wage base and assigns each employer a rate, which depends on its history of claims. Use the rate on your state's notice, not a guess.

Because FUTA and SUTA stop at a wage cap, their effective percentage is lower for a worker paid all year than for one hired for a few months. High turnover raises your effective unemployment cost, because the cap starts over with each new employee.

Workers' compensation

Workers' comp is usually rated per $100 of payroll for each class code, then adjusted by your experience modification rate. Rates differ widely between trades and between states, so a roofer and a finish carpenter in the same firm can carry very different burdens. Many states leave the overtime premium out of the payroll that workers' comp is charged on; check how your state and your carrier handle it.

General liability on payroll

Many contractors' general liability policies are rated on payroll, often per $1,000 of payroll. If yours is, the premium belongs in burden. If it is rated on revenue or on subcontract cost instead, carry it in overhead or as a job cost, not in labor burden.

Benefits

Employer-paid health insurance, retirement contributions and any other benefits you pay for each worker. On union work these are the hourly contributions to the trust funds under the agreement.

Paid time off

Holidays, vacation and paid sick time are hours you pay for with no production. The cost is real even though no payroll line looks unusual. The cleanest way to carry it is to spread the year's paid time off over the hours actually worked.

How to calculate a burden percentage

Work it on a year, for one worker or one crew position, then divide by the hours that produce work. Here is a worked example. Every number below is an example value; use your own rates, notices and policies.

Say a carpenter earns $30.00 per hour, is paid for 2,080 hours a year (40 hours × 52 weeks), and takes 80 of those hours as paid holidays and vacation. That leaves 2,000 productive hours.

• Annual wages: 2,080 hours × $30.00 = $62,400.00
• Productive wages: 2,000 hours × $30.00 = $60,000.00
• Paid time off: 80 hours × $30.00 = $2,400.00

The example rates: FICA at 7.65% of all wages, FUTA at a net 0.6% on $7,000, SUTA at 2.7% on a $9,000 wage base, workers' comp at $6.00 per $100 of payroll, general liability at $12.00 per $1,000 of payroll, health insurance at $600 a month, and a 3% retirement contribution.

Then:

• Burden percentage: $21,023.40 / $60,000.00 = 35.04%
• Burden per productive hour: $21,023.40 / 2,000 hours = $10.51
• Burdened rate: $30.00 + $10.51 = $40.51 per hour

Check it another way: total annual cost is $62,400.00 + $18,623.40 of taxes, insurance and benefits = $81,023.40, and $81,023.40 / 2,000 hours = $40.51. The two answers agree.

Note what the percentage is taken on: productive wages, the hours you actually price in an estimate. That is how paid time off gets recovered. The estimate prices only hours of work, and the burden carries the hours that are paid but not worked.

A few points to watch:

• Work out burden per trade. Workers' comp alone can move the percentage by many points between crafts. One blended company rate misprices a job whose labor mix differs from your average.
• Revisit it every year, and whenever an insurance policy renews or your experience mod changes.
• Overtime changes the math. The premium portion of an overtime hour is wages for FICA, but may not be for workers' comp in your state.

Burden in each line, or burden as its own bid line

There are two common ways to carry burden in an estimate, and both give the same total when done right.

Burdened rates in each line. Every labor line is priced at the fully loaded rate. This works well when you quote unit prices or time and material rates, when trades with very different workers' comp rates share a job, and when you compare your own labor against a subcontractor's all-in price.

Direct rates with burden as its own bid line. Labor lines carry the payable wage, and burden is added once, as a percentage of total labor, in the bid summary. This keeps the wage visible, makes the burden easy to audit and change late in bid day, and suits owners or agencies whose cost breakdown asks for labor and burden separately.

Whichever you choose, apply burden to your own labor only. Subcontract quotes already carry their own burden, and material and equipment carry none. The most common mistake is to do both: burdened rates in the lines and a burden line in the summary.

In IntelCost's Wage Calculator, the labor pricing basis for a project is Burdened (fully loaded) or Direct Labor (unburdened). Under Direct Labor, the rates show the payable wage and the labor burden is carried as its own line in the bid summary. Our guide on how to build a bid summary shows where that line sits among the markups.

Burden on prevailing wage jobs

On a prevailing wage job, the wage determination sets a base rate and a fringe amount for each classification. How you meet the fringe changes your burden. (Our guide on how to read a Davis-Bacon wage determination walks through the document itself.)

• Fringe paid to bona fide plans (health, pension, training and similar) counts toward the fringe obligation and is generally not subject to FICA, FUTA or SUTA.
• Fringe paid in cash is wages. It carries payroll taxes, and in many states it is counted in workers' comp payroll as well.
• Your existing benefits count. If you already pay health insurance for a worker, its hourly cost can generally be credited toward the required fringe benefits. Do not also add it to burden on top of the full fringe, or you price it twice.
• Statutory costs are not fringe. Payroll taxes, unemployment insurance and workers' comp are required by law and cannot be credited toward the fringe.
• Credit is generally figured over all hours worked. Under the Davis-Bacon rules, the hourly credit for a plan contribution is generally worked out over all the hours the worker works in the year, public and private, not just the hours on the public job. For example, a $7,200 annual health plan for a worker with 2,080 hours credits $7,200 / 2,080 hours = $3.46 per hour. Against an example fringe of $18.75, that leaves $18.75 − $3.46 = $15.29 per hour to pay to other plans or in cash.

There are exceptions and details to these rules. For a binding answer on a specific contract, go to the contract documents, the contracting agency or the Department of Labor.

Common mistakes

• Pricing labor at the wage alone and treating burden as part of overhead.
• Using last year's workers' comp rates or experience mod.
• Adding burden to subcontract or material costs.
• Counting paid time off twice, once in the wage base and once as a burden item.
• Burdened rates in the lines and a burden line in the summary on the same bid.
• On prevailing wage work, paying fringe in cash without pricing the payroll taxes that come with it.