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How to calculate labor burden for construction bids

A worker you pay $25 an hour costs you more than $25 an hour. Payroll taxes, workers’ comp, insurance, paid time off and the hours they’re on the clock but not on a job all add up. That extra is labor burden. If your bids use the bare wage, you lose money on every labor hour you sell. Here is a simple way to work out a burdened rate.

Step 1. Start with the hourly wage

Use the base wage you actually pay each worker or each crew position.

Step 2. Add the costs that ride on every payroll dollar

• Employer FICA: 7.65% of wages (6.2% Social Security plus 1.45% Medicare, with the Social Security part capped at the annual wage base).
• Federal unemployment (FUTA): usually 0.6% on the first $7,000 of each worker’s wages after the state credit.
• State unemployment: your rate comes from your state and your claims history. Check your state notice.
• Workers’ comp: priced per $100 of payroll by trade class. Roofing and framing run far higher than carpentry or electrical. Use the rate on your policy.
• Liability insurance if your carrier rates it on payroll.

Step 3. Add benefits and paid time that isn’t billable

Health insurance, retirement match, holidays, vacation, sick time, training, safety meetings and shop or drive time you pay but can’t charge to a job. Turn each into a cost per paid hour.

Step 4. Divide by billable hours, not paid hours

Step 5. Bid labor at burdened cost, then add overhead and profit

Burdened labor is still a direct cost. Overhead and profit go on top of it, not inside it. Use your overhead rate and the free bid markup calculator to get from direct cost to a bid price.

Mistakes that hide in labor

1. Dividing by 2,080. Nobody bills every paid hour. Use the hours that actually hit jobs.
2. One rate for every trade. Workers’ comp differs by class, so a roofer and a finish carpenter have different burdens.
3. Forgetting yourself. If you work in the field, your own labor belongs in the estimate at a real rate.
4. Counting burden twice. If benefits are already in overhead, don’t add them again here.

General education with example numbers only, not payroll, tax, insurance or accounting advice. Rates change and vary by state and trade; your payroll provider, insurance agent and accountant should set your real numbers.

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