Your labor burden rate is the true hourly cost of an employee once you add payroll taxes, insurance, and benefits on top of their base wage. To calculate it, divide a worker's total annual cost (wages plus all burden costs) by the actual hours they work each year. For most trade businesses the burden adds 25–40% on top of base pay, so a $25/hour tech really costs $32–$42/hour.
What is a labor burden rate?
Labor burden is everything you pay to employ someone beyond their hourly wage. The wage is the number on the offer letter. The burden is the pile of costs underneath it: the employer half of payroll taxes, workers' compensation, health insurance, paid time off, vehicle and phone allowances, uniforms, and training.
Your labor burden rate rolls all of that into a single fully-loaded hourly number — the figure you should actually be pricing jobs against. Quote off the raw wage and you're quietly underbidding every job by hundreds of dollars.
If you only price against base wages, your cost estimates can be off by 50% or more. The burden is not optional overhead — it's the cost of having a tech on the truck.
What goes into labor burden
Burden costs fall into three buckets. Some are legally required, some are benefits you choose to offer, and some are the day-to-day cost of putting a person in the field.
Mandatory costs (you can't skip these)
- Employer FICA — 7.65%. You match Social Security (6.2% on the first $184,500 of wages in 2026) and Medicare (1.45% on all wages). [Paycom, 2026]
- Federal unemployment (FUTA) — effectively 0.6%. It's 6.0% on the first $7,000 of wages, but paying your state unemployment tax on time earns a 5.4% credit, capping FUTA at about $42 per employee per year. [OnPay]
- State unemployment (SUTA). Varies by state and experience rating; new employers often pay around 2.5%–3.4%.
- Workers' compensation. This is the big one for trades. Rates run roughly 5%–15%+ of payroll for construction and field work, versus under 1% for office staff. [Procloz, 2026]
Benefits you choose to offer
- Health insurance premiums
- Retirement / 401(k) match
- Paid time off, holidays, and sick days (you pay for hours not worked)
Cost of putting them in the field
- Truck, fuel, and vehicle maintenance allocated per tech
- Phone, tablet, and software seats
- Uniforms, small tools, and safety gear
- Ongoing training and licensing
The labor burden rate formula
There are two ways people express this, and it's worth knowing both.
Labor burden rate (as a percentage):
Labor burden rate = (total annual burden costs ÷ total annual base wages) × 100
Fully burdened hourly rate (the number you price with):
Fully burdened rate = (annual wages + annual burden costs) ÷ actual hours worked per year
The trap most owners miss is the hours figure. A full-time employee is paid for 2,080 hours a year, but between PTO, holidays, training, drive time, and slow days, you're lucky to bill 1,700–1,800 of them. Dividing by real productive hours — not 2,080 — is what makes the number honest.
A worked example
Take an HVAC tech earning $25/hour. Base pay for 2,080 hours is $52,000. Now layer the burden on top:
| Cost | Rate | Annual amount |
|---|---|---|
| Base wages | $25/hr × 2,080 | $52,000 |
| Employer FICA | 7.65% | $3,978 |
| FUTA + SUTA | ~3.5% | $1,820 |
| Workers' comp | 8% | $4,160 |
| Health + retirement | — | $7,200 |
| Truck, phone, tools | — | $6,500 |
| Total annual cost | $75,658 |
That's a labor burden of about 45% on top of wages. Now divide by productive hours, not paid hours. If this tech bills 1,750 hours a year:
$75,658 ÷ 1,750 = ~$43.23/hour fully burdened.
The tech "costs $25/hour" on paper. The real number you must clear before earning a dime of profit is closer to $43/hour — about 73% higher. Independent estimates put the typical fully burdened rate 25–40% above base wage for businesses with lighter benefits and lower comp rates; trades with heavy workers' comp land at the top of that range or beyond. [Construction Coverage]
Turning burden into your selling price
The burdened rate is your cost floor, not your price. Once you know it, you add overhead and the profit margin you want on top. That's a markup-vs-margin calculation, and it's where a lot of contractors quietly lose money by confusing the two — we break that down in Markup vs Margin for Contractors.
To run the math fast, drop your burdened cost into the margin & markup calculator and target a margin (most healthy trade shops aim for 50–60% gross on labor). Example: a $43/hour burdened cost at a 55% gross margin needs a billed rate of about $96/hour.
The real win is doing this once and baking it into a price book so every quote uses the right number automatically. Keeping burdened costs current across every service line is exactly what Pricebookr is built for — it syncs with Jobber so your pricing reflects true costs instead of a guess.
Common mistakes that wreck the number
- Dividing by 2,080 hours. You don't bill every paid hour. Use productive hours or your rate will read low.
- Forgetting workers' comp. For trades it can add 5–15% by itself and varies by class code — don't eyeball it.
- Using one blanket rate for everyone. A senior tech with a truck and full benefits has a very different burden than a part-time helper. Burden the roles separately.
- Setting it once and forgetting it. Wages, insurance, and comp rates change yearly. Re-run it at least annually.
Why getting this right matters more in 2026
Two things make an accurate burden rate non-negotiable this year. First, the Social Security wage base climbed to $184,500 for 2026, so the 6.2% bite applies to more of each tech's pay. [Paycom, 2026] Second, health premiums and workers' comp rates for the trades have kept rising faster than general inflation, which quietly inflates burden even when wages hold flat.
The practical effect: a burden rate you calculated two years ago is almost certainly too low today, which means every quote built on it is leaving money on the table. Owners who re-run the number each January and push it into their price book protect their margins without having to win a single extra job. It's the cheapest profit improvement available to a field-service business — you're not cutting costs or raising prices recklessly, just charging what the work actually costs.
FAQ
What is a good labor burden rate for contractors?
There's no single "good" number — it depends on your benefits and workers' comp class. Most trade businesses land between 25% and 50% on top of base wages. What matters is that you've calculated yours accurately rather than guessing, so your quotes cover real costs.
What's the difference between labor burden and overhead?
Labor burden is the cost tied directly to employing a specific worker — taxes, insurance, benefits, and their truck and tools. Overhead is the cost of running the business as a whole (office rent, admin staff, advertising). Both get recovered in your price, but burden is per-employee while overhead is spread across all jobs.
How do I calculate fully burdened labor rate?
Add total annual burden costs to annual wages, then divide by the hours the employee actually works (not the 2,080 they're paid for). For a $25/hour tech with ~45% burden billing 1,750 hours, that's roughly $43/hour.
Does labor burden include profit?
No. Labor burden is purely cost — it tells you what an hour of that employee's time costs you. Profit and overhead are added on top when you set your billed rate, typically using a target gross margin.
How often should I update my labor burden rate?
At least once a year, and any time a major input changes — a raise, a new benefit, or a workers' comp rate adjustment. Stale burden numbers are one of the most common reasons trade shops slowly slide from profitable to break-even.