What labor burden includes
Labor burden is every dollar that leaves your account on behalf of a worker beyond the number on their paycheck. When you hire a journeyman electrician at $32 an hour, you commit to paying FICA, state and federal unemployment taxes, workers' compensation insurance, general liability, and whatever benefit package your company offers. Every one of those items is part of your true labor cost and must appear in your bid or it comes straight out of margin.
The four main buckets are:
- Employer payroll taxes — FICA (Social Security 6.2% + Medicare 1.45% = 7.65% combined employer share), Federal Unemployment (FUTA, typically 0.6% net on first $7,000), and State Unemployment (SUTA, which varies widely from under 1% to over 8% depending on state base and your experience rate)
- Workers' compensation insurance — Rated by NCCI class code; construction trades range from roughly $3 per $100 of payroll for inside electrical work up to $30–48 per $100 for roofing. Your experience modification factor (EMR) multiplies the manual rate up or down from there.
- General liability and umbrella — Typically 1.5–4.5% of gross wages when expressed as a labor burden component, though formally rated against receipts.
- Benefits, PTO, and small tools — Health insurance contribution, 401(k) match, paid time off, holiday pay, and a share of small tools and supervision. Non-union commercial contractors commonly run 18–26% of base wage in this bucket; union trades with defined fringe packages can exceed 80%.
All four buckets apply before overhead and before profit. They are direct labor cost, and the formula that ties them together is the burden rate.
Burden rate formula
The burden rate is the ratio of total annual burden costs to total annual base wages. Apply it to the hourly base wage to get your fully burdened rate, which is the number you should be pricing labor from in every bid.
| Formula | Description |
|---|---|
Burden Rate = Total Annual Burden Costs ÷ Total Annual Base Wages | Express as a decimal or percentage |
Fully Burdened Rate = Base Wage × (1 + Burden Rate) | The cost you actually bid from |
If your firm pays $450,000 per year in taxes, insurance, and benefits on a $1,200,000 base-wage payroll, the burden rate is 37.5%. A $28/hr laborer costs you $28 × 1.375 = $38.50/hr before overhead or profit touch it. The practical range for non-union commercial construction is 25–40%; high workers-comp trades like roofing and structural steel routinely sit at the top of that band or above it.
If you do not have a firm-specific burden analysis, 35% is a reasonable starting floor for non-union commercial work. Build the actual stack before any bid where labor is more than 30% of total cost — the difference between 35% assumed and 40% actual on a $1.2M labor project is $60,000 of unrecovered cost.
Worked example
Take a $30/hr base wage and a 38% burden rate, which is a reasonable mid-range figure for a non-union mechanical contractor in the Southeast with a modest SUTA rate and moderate workers-comp exposure.
| Line Item | Rate | $/hr on $30 Base |
|---|---|---|
| Base wage | — | $30.00 |
| FICA (employer) | 7.65% | $2.30 |
| FUTA (net) | 0.6% | $0.18 |
| SUTA (blended ~2%) | 2.0% | $0.60 |
| Workers comp (NCCI 5183 ~9%) | 9.0% | $2.70 |
| General liability (2.5%) | 2.5% | $0.75 |
| Health & benefits (11%) | 11.0% | $3.30 |
| PTO / holiday (5%) | 5.0% | $1.50 |
| Small tools & supervision (0.25%) | 0.25% | $0.07 |
| Fully burdened rate | ~38.1% | $41.40 |
Bidding at $30/hr undercharges by $11.40 every single hour that worker is on the clock. On a standard 2,000-hour work year that is $22,800 of unrecovered cost per worker, per year. A five-person crew running full-time means $114,000 of labor cost that never made it into the bid. That is not a rounding error — it is the difference between a profitable year and a loss.
The number changes with each project. A roofing crew in a high-EMR shop operating under NCCI 5551 at $32/$100 of payroll is carrying workers-comp burden alone in excess of 32% before a single dollar of FICA or benefits is added. Building the stack from scratch for each bid is not excessive — it is the minimum due diligence on any self-perform scope.
Burden vs. overhead vs. O&P
These three layers are frequently confused, and conflating them distorts both the estimate and the job cost report. Getting the order right matters as much as getting each component right.
Burden is part of direct labor cost. It is not overhead. It belongs on the labor line, at the crew level, before any indirect or markup is applied. When you build a crew assembly — say, one foreman and three journeymen on a pipe install — the burdened hourly cost of each person rolls into the unit labor cost. That unit cost is what feeds productivity-adjusted manhour pricing.
Overhead is indirect company cost that cannot be assigned to a single project: office rent, vehicles, estimating time, accounting, and the owner's salary above what they would earn as a field worker. It is applied as a percentage of direct cost or of revenue after the direct cost, including burdened labor, is established. Applying overhead to unburdened labor inflates the overhead rate and makes apples-to-apples job cost analysis impossible.
O&P (overhead and profit markup) is the final layer. It is applied on top of fully burdened direct cost plus any overhead allocation. On prevailing-wage (Davis-Bacon) jobs, both the base wage and the required cash-fringe contribution change — the statutory and insurance layers still apply to the base wage, but the fringe is an additional direct cost line. Check the applicable Wage Determination for every federal or federally assisted project and build the burden from the WD numbers up, not from your standard non-union rate card.