Your Labour Burden Rate Is Probably Wrong

The Number Behind Every Estimate

A carpenter on $32 an hour does not cost you $32 an hour. By the time you add payroll taxes, workers compensation, general liability, health insurance, paid time off and the hours you pay for but cannot bill, the real number is often between $45 and $55.

If you estimate at $32 plus a round mark-up someone picked years ago, every bid you produce is built on a guess. On labour-intensive work that guess is the difference between a job that makes money and one that does not — and because it is embedded in the estimate, you will not see the error in your job costing. The job will simply come in over, repeatedly, and nobody will be able to say why.

What Goes Into Burden

Work through the components for one employee over a year:

• Employer payroll taxes. Social Security and Medicare, plus federal and state unemployment. Note that unemployment applies only up to a wage base, so its effective rate falls as annual wages rise.
• Workers compensation. Rated per $100 of payroll by classification, and construction classifications vary enormously. Your experience modification factor adjusts it further.
• General liability. Often payroll-based for contractors.
• Health insurance and retirement. Your actual employer contribution.
• Paid time off. Holidays, vacation, sick leave — hours you pay for and cannot bill.
• Non-productive paid time. Training, safety meetings, yard time, travel between sites where paid.
• Small tools, PPE, phone allowances if you provide them per worker.

The Denominator Is Where People Go Wrong

Most contractors calculate burden as a percentage of wages and stop there. The bigger error is in the hours.

A full-time employee is paid for roughly 2,080 hours a year. They are not on a job for 2,080 hours. Subtract holidays, vacation, sick time, training and other paid non-productive time and you may be at 1,800 productive hours, sometimes less.

That matters because all of the annual cost — every dollar of tax, insurance and benefit — has to be recovered across the hours you can actually bill. Dividing by 2,080 instead of 1,800 understates your hourly cost by roughly 13% before you have made a single other error.

So the calculation is: (annual wages + annual burden costs) ÷ annual productive hours. That gives you a fully burdened hourly rate you can estimate with and cost jobs against.

Rates Differ by Trade, and It Matters

Using one company-wide burden rate is convenient and frequently wrong. Workers comp rates vary sharply by classification — roofing and structural work carry very different rates from finish carpentry or office staff. A single blended rate overstates the cost of your low-risk trades and understates the high-risk ones.

The practical consequence: you bid competitively on the work that is quietly least profitable, and price yourself out of work that would have made money. That is a hard pattern to spot from the outside, because every individual job looks explicable.

If your trades have materially different comp rates, calculate burden by trade. It is more work once and it changes which jobs you win.

Public Works Changes the Arithmetic

On prevailing wage work, the required fringe portion can be satisfied in cash or through benefits. Paying it in cash increases wages, which increases payroll taxes and any payroll-based insurance — so cash fringe carries burden that funded benefits do not.

That interaction is worth modelling before you decide, and it is specific to your numbers. See the certified payroll guide for how the fringe requirement itself works.

Recalculate Annually, and After Anything Big

Burden is not a constant. Your experience modification changes. Insurance renews. Benefit costs move. A rate calculated three years ago is now fiction, and because it feeds every estimate, the error is systematic rather than random.

Recalculate at least annually, and immediately after a workers comp renewal or a benefits change. Then check it against reality: compare your estimated labour cost to actual job cost on completed jobs. If actual consistently exceeds estimate on labour, your burden rate is the first place to look.

This is a half-day exercise that changes the accuracy of every bid you produce afterwards. If you want it worked through with your actual payroll and insurance figures, we can do that with you.