How to Calculate Your Labor Burden Rate (Free Formula + Example)

What labor burden is

Labor burden is the true cost of an employee — their wage plus all the additional costs of employing them, spread over the hours they’re actually billable. The gap between wage and burden is huge and almost always underestimated, which is why so many contractors price too low without realizing it (price book).

What goes into burden

Start with the base wage, then add every cost of employment:

• Payroll taxes (employer portion of FICA, unemployment).
• Workers’ comp insurance (workers’ comp).
• Health insurance and benefits.
• Paid time off, holidays, sick days.
• Training, certifications, uniforms.
• Vehicle, fuel, tools, phone.

The formula

Loaded labor rate = Total annual cost of the employee ÷ Annual BILLABLE hours

The critical trick is the denominator: billable hours, not paid hours. A tech paid for 2,080 hours a year isn’t billable for all of them — subtract PTO, holidays, training, drive time, and shop time. They might bill only ~1,500 hours. Dividing by billable hours is what reveals the real rate.

A worked example

Say a tech earns $25/hour (about $52,000/year):

• Wage: $52,000
• Payroll taxes, workers’ comp, benefits, PTO, tools, vehicle, etc.: add — say — another ~$28,000 (varies widely).
• Total annual cost ≈ $80,000.
• Billable hours ≈ 1,500 (after removing non-billable time).
• Loaded labor rate = $80,000 ÷ 1,500 ≈ $53/hour.

Your $25/hour tech actually costs you about $53/hour — more than double the wage. Price from $25 and you’re underwater before overhead or profit. (Your real numbers will differ — run your own.)

Then build price on top

The loaded labor rate is your cost, not your price. On top of it you still add overhead recovery and profit margin to get what you charge (overhead recovery, job costing). Miss the burden step and every downstream number is wrong.

Charge what you’re worth — reviews make it easier

Once you see your true labor cost, you’ll realize you need to charge more than you thought — and reputation is what lets you. Well-reviewed businesses command higher rates with less pushback. Tailwind builds that reputation automatically so your correctly-priced labor sells — see how it works.

Know what your labor really costs. See how Tailwind works.