Contractor Finance Glossary
What is Labor Burden?
Definition reviewed .
Also called: burden rate, payroll burden
Labor burden is everything you pay for a worker beyond the base wage: employer payroll taxes, workers compensation, benefits and other employment costs. Fully-loaded labor cost is the base wage plus that burden.
Employer payroll taxes include 6.2% Social Security up to the applicable annual wage base and 1.45% Medicare without that wage-base cap. Add applicable unemployment taxes, actual workers-comp policy costs and benefits. Workers-comp class code, payroll basis and experience adjustments can change the cost; use your actual policy instead of an assumed trade-wide percentage.
Illustratively, a $30 wage with 35% burden gives $40.50 per paid hour. At 70% productive hours, the comparable cost is $57.86 per productive hour, about 93% above the wage. These assumptions are fictional, not an industry range. Annualize tax caps and avoid counting paid leave both in wages and again as a benefit cost.
How it is calculated
Burden rate = annual employer taxes, workers-comp cost and benefits divided by the matching annual wages. Loaded labor cost = wages plus those costs. Cost per productive hour = annual loaded cost divided by productive hours. Align each numerator and denominator with the same included roles and period.
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