Labor Burden Calculation for Contractors [Complete Guide 2025]

WARNING:

If you're bidding labor at base wage rates without calculating burden, you're losing 30-50% of your labor profit on every single job. This is the #1 reason roofing contractors go out of business.

What is Labor Burden?

Labor burden is the total cost of employing a worker beyond their base hourly wage. It includes all taxes, insurance, benefits, and other employment costs that you must pay as an employer.

For example, if you pay a roofer $25/hour, your actual cost is typically $32-38/hour when you include all burden costs. If you bid that worker at $25/hour, you're working for free on the burden portion.

Quick Definition:

Labor Burden Rate = Total Employment Costs ÷ Base Wages
This gives you a multiplier to apply to all labor estimates. If your burden rate is 1.35, multiply all wages by 1.35.

Why Most Contractors Get This Wrong

Here's what happens when you don't calculate labor burden correctly:

You bid jobs based on hourly wage rates ($25/hour)
You win the job because your price is lower than competitors who calculate burden
The job completes, you pay wages, but then quarterly taxes hit
Workers comp audit at year-end shows additional premium due
You realize you've been working at break-even or a loss all year

This is not theoretical. This happens to thousands of contractors every year, and it's the leading cause of contractor business failure.

7 Components of Labor Burden

1. FICA (Social Security Tax)

Rate: 6.2% of wages (up to $168,600 in 2025)
Who Pays: Employer pays 6.2%, employee pays 6.2% (you only calculate your portion)
Example: $25/hour × 2,080 hours = $52,000/year × 6.2% = $3,224/year

2. Medicare Tax

Rate: 1.45% of all wages (no cap)
Who Pays: Employer pays 1.45%, employee pays 1.45%
Example: $52,000 × 1.45% = $754/year

3. Federal Unemployment Tax (FUTA)

Rate: 6.0% on first $7,000 of wages (but usually reduced to 0.6% with state credits)
Effective Rate: 0.6% typically
Example: $7,000 × 0.6% = $42/year per employee

4. State Unemployment Tax (SUTA)

Rate: Varies by state and experience rating (typically 1.5% - 6%)
Average: 3% is a reasonable estimate for established contractors
Example: First $10,000 × 3% = $300/year per employee

5. Workers Compensation Insurance

Rate: Varies dramatically by state and trade (roofing is one of the highest)
Typical Range: $15-50 per $100 of payroll
Roofing Average: $30 per $100 is common
Example: $52,000 × 30% = $15,600/year

Important:

Workers comp is typically THE largest component of labor burden for roofers, often 25-35% of wages. Get accurate quotes from your insurance agent for each job classification.

6. General Liability Insurance

Rate: Often calculated as percentage of payroll
Typical Range: 1-5% of payroll depending on your operations
Example: $52,000 × 2% = $1,040/year

7. Benefits and Other Costs

These vary widely but may include:

Health Insurance: $400-800/month per employee = $4,800-9,600/year
Retirement/401k Match: 3-6% of wages
Paid Time Off: Calculate cost of paid holidays and vacation
Training and Safety Equipment: PPE, certifications, OSHA training
Uniforms and Tools: Annual cost per employee

How to Calculate Your Labor Burden Rate

Follow these steps to calculate your exact burden rate:

Step-by-Step Calculation

Step 1: Calculate Base Annual Wages

Hourly Rate × 2,080 hours (52 weeks × 40 hours)

$25/hour × 2,080 = $52,000

Step 2: Add All Burden Costs

FICA (6.2%)	$3,224
Medicare (1.45%)	$754
FUTA (0.6%)	$42
SUTA (3%)	$300
Workers Comp (30%)	$15,600
Gen Liability (2%)	$1,040
Health Insurance	$7,200
Total Burden	$28,160

Step 3: Calculate Burden Rate

Total Burden ÷ Base Wages = Burden Rate

$28,160 ÷ $52,000 = 0.54 or 54%

Add 1 to get your multiplier: 1.54

Final True Cost

Base Wage × Multiplier = True Hourly Cost

$25/hour × 1.54 = $38.50/hour

Real-World Example: Bidding a Roofing Project

Let's say you're bidding a project that requires 200 labor hours:

WRONG (No Burden)

200 hours × $25/hour = $5,000

You bid $5,000 for labor

You pay $5,000 in wages

You pay $2,700 in burden costs

Loss: -$2,700

CORRECT (With Burden)

200 hours × $38.50/hour = $7,700

You bid $7,700 for labor

You pay $5,000 in wages

You pay $2,700 in burden costs

Covers all costs!

Industry Benchmarks by Trade

Trade	Typical Burden %	Multiplier	Notes
Roofing	45-60%	1.45-1.60	High workers comp rates
Carpentry	35-45%	1.35-1.45	Moderate risk
HVAC	30-40%	1.30-1.40	Lower risk, skilled labor
Electrical	30-40%	1.30-1.40	Lower risk, high wages
General Labor	40-50%	1.40-1.50	Variable by task

5 Costly Mistakes to Avoid

1. Using Industry Averages Instead of Your Actual Costs

Every state has different workers comp rates. Every company has different benefit costs. Calculate YOUR specific burden rate, don't use generic numbers from the internet.

2. Forgetting to Update Your Rate Annually

Workers comp rates change. Tax rates change. Insurance premiums change. Recalculate your burden rate at least annually, ideally quarterly.

3. Not Separating Office vs Field Labor

Office workers have lower workers comp rates (often 90% less than roofers). Calculate separate burden rates for office staff vs field crews.

4. Bidding Straight Time But Paying Overtime

If you know a project will require overtime, your burden multiplier doesn't change, but your base rate does (time-and-a-half). Factor this into estimates.

5. Ignoring Unproductive Time

Burden costs don't stop when workers aren't on a job. Travel time, weather delays, training, and equipment maintenance are all paid hours with full burden. This is why you also need overhead markup beyond just burden.