Labor burden is everything an employer pays for an hour of labor beyond the base wage: payroll taxes, insurance, benefits, and the cost of hours you pay for but cannot bill to a job. On self-performed work, labor is often the most volatile part of an estimate, and a burden rate that is a few points low repeats itself on every hour in the bid.
This guide walks through the components, then builds a burdened rate from scratch so you can see where each dollar comes from. Use the labor burden field checklist to review the inputs for your own crew rate.
What Goes Into Labor Burden
Burden costs fall into four groups:
- Statutory payroll taxes: FICA (Social Security and Medicare), FUTA (federal unemployment), and SUTA (state unemployment).
- Insurance tied to payroll: workers’ compensation (rated per $100 of payroll by class code) and, for many contractors, general liability that the carrier rates on payroll for certain trades.
- Fringe benefits: employer share of health insurance, retirement contributions, training funds, and union fringes where applicable.
- Non-productive paid time: vacation, holidays, sick leave, paid safety meetings and training. These do not add dollars to payroll by themselves, but they reduce the hours you can charge to projects.
Payroll tax basics
| Tax | Rate | Wage base | Notes |
|---|---|---|---|
| Social Security (employer) | 6.2% | Up to the annual SSA wage base | Stops once an employee’s wages exceed the base for the year |
| Medicare (employer) | 1.45% | All wages | No cap on the employer side |
| FUTA | 6.0% gross | First $7,000 per employee | Up to a 5.4% credit for timely state unemployment payments, so typically 0.6% net ($42 per employee); credit-reduction states pay more |
| SUTA | Varies by state and employer experience | Varies by state | New-employer rates and taxable wage bases differ widely; use your state rate notice |
Together, Social Security and Medicare make up the familiar 7.65% FICA rate for wages under the Social Security wage base.
Workers’ compensation and liability
Workers’ comp is quoted per $100 of payroll by class code, and rates vary a great deal by state, trade and your experience modification rate (EMR). A roofer or steel erector can carry a rate several times that of an electrician in the same state. Many states calculate premium on payroll excluding the overtime premium portion, so check your policy before applying the rate to overtime hours. Use your actual policy rates multiplied by your EMR, not a generic number.
Worked Example: Building a Burdened Rate
Example: an open-shop carpenter paid $32.00/hour, full-time. All rates below are illustrative 2026 assumptions; replace them with your own payroll, policy and benefit figures.
Step 1: Paid hours and base wages
- Paid hours: 40 hours x 52 weeks = 2,080 hours
- Base wages: $32.00 x 2,080 = $66,560.00
Step 2: Payroll taxes
- Social Security: $66,560 x 6.2% = $4,126.72 (wages are below the SSA wage base, so the full amount is taxable)
- Medicare: $66,560 x 1.45% = $965.12
- FICA total: $4,126.72 + $965.12 = $5,091.84 (check: $66,560 x 7.65% = $5,091.84)
- FUTA: $7,000 x 0.6% = $42.00
- SUTA: assume 2.7% on a $9,000 state wage base: $9,000 x 2.7% = $243.00
Step 3: Insurance
- Workers’ comp: assume $8.50 per $100 of payroll: ($66,560 / 100) x $8.50 = 665.60 x $8.50 = $5,657.60
- General liability: assume $1.50 per $100 of payroll: 665.60 x $1.50 = $998.40
Step 4: Fringe benefits
- Health insurance, employer share: $800/month x 12 = $9,600.00
- Retirement match: 3% x $66,560 = $1,996.80
Step 5: Total burden and total cost
| Item | Annual cost | Per paid hour (/2,080) |
|---|---|---|
| Base wages | $66,560.00 | $32.00 |
| FICA (7.65%) | $5,091.84 | $2.45 |
| FUTA | $42.00 | $0.02 |
| SUTA | $243.00 | $0.12 |
| Workers’ comp | $5,657.60 | $2.72 |
| General liability | $998.40 | $0.48 |
| Health insurance | $9,600.00 | $4.62 |
| Retirement match | $1,996.80 | $0.96 |
| Total burden | $23,629.64 | $11.36 |
| Total annual cost | $90,189.64 | $43.36 |
Per-hour figures are rounded to the cent, so the column does not add exactly; the totals are calculated from the annual amounts.
Burden $ = $5,091.84 + $42.00 + $243.00 + $5,657.60 + $998.40 + $9,600.00 + $1,996.80 = $23,629.64.
Burden % on paid hours = $23,629.64 / $66,560.00 = 35.5%, giving a rate of $90,189.64 / 2,080 = $43.36/hour.
Step 6: Adjust for productive hours
The 2,080 paid hours include time that cannot be charged to a job. Assume:
- Vacation: 80 hours
- Holidays: 7 days x 8 hours = 56 hours
- Paid safety meetings and training: 24 hours
- Non-productive total: 160 hours
Productive hours = 2,080 - 160 = 1,920 hours.
Burdened rate per productive hour = $90,189.64 / 1,920 = $46.97/hour.
Effective burden on the base wage = ($46.97 - $32.00) / $32.00 = 46.8%.
Dividing the same annual cost by fewer hours raises the rate from $43.36 per paid hour to $46.97 per productive hour. The 11.3-percentage-point gap in burden comes from the vacation, holidays and training hours removed from the denominator. Use the productive-hour rate when your estimate is built from productive job hours.
Apply the rate to a bid item
Suppose an installation takeoff calls for 80 productive crew-hours, measured as the sum of the workers’ hours. Using the rounded rate from Step 6, the direct labor line is 80 × $46.97 = $3,757.60. Using the paid-hour rate for those same job hours would carry $3,468.80, leaving $288.80 out of the labor line.
Record the hour basis with the labor rate in your bid workbook. The productive-hour rate already spreads the cost of paid holidays and training over job hours, so count those costs once. Price materials, equipment and markup separately.
Other Items That Change the Rate
- Overtime: the premium half of time-and-a-half is not a base wage cost the crew rate covers. Price it separately where the schedule requires it.
- Small tools and consumables: some contractors carry these as a percentage of labor; if you do, keep it out of the burden percentage so it is not double counted in material.
- Vehicles, phones and per diem: these are real costs, but they usually belong in general conditions or equipment, not burden. See our general conditions guide.
- Union work: fringes are set by the collective bargaining agreement as dollars per hour worked. Add them per hour, then apply taxes and insurance per the agreement and your policy.
Prevailing Wage vs. Open Shop
On Davis-Bacon and state prevailing wage work, the wage determination sets both a basic hourly rate and a fringe amount for each classification and county. Fringes can be paid into bona fide plans or as cash. Two estimating points matter: cash fringes paid as wages generally attract payroll taxes, while contributions to bona fide plans generally do not; and apprentice ratios and certified payroll requirements add administrative cost. Build a separate burden rate for each prevailing wage job rather than reusing your open-shop number.
Checklist: Before You Use a Burden Rate in a Bid
- Base wage matches the classification and location on the project
- FICA applied at 7.65%, with the Social Security cap considered for high earners
- FUTA at net rate on the first $7,000, adjusted if you are in a credit-reduction state
- SUTA from your current state rate notice and wage base
- Workers’ comp from your policy for the correct class code, times your EMR
- General liability basis confirmed (payroll, revenue, or both)
- Health, retirement and other fringes at actual employer cost
- Non-productive paid hours counted and rate calculated on productive hours
- Separate rates for prevailing wage and union jobs
- Rate reviewed at least annually and whenever insurance renews
Common Mistakes
- Dividing by 2,080 when the estimate’s labor hours are productive hours.
- Using one burden % for every trade. Workers’ comp class codes make trade-level rates very different.
- Applying FUTA and SUTA to all wages instead of only the taxable wage base, which overstates burden for full-year employees.
- Forgetting the EMR or using last year’s policy rates after renewal.
- Double counting vehicles or small tools in both burden and general conditions.
- Copying a percentage from another contractor or a rule of thumb. A burden percentage only means something for the wage, state and benefit package it was built on.
How F&K Estimatings Can Help
When we price self-performed labor, we build location-specific labor rates and show the burden assumptions in the estimate so you can swap in your own payroll figures. Our approach is described on our methodology page, and labor pricing is part of our cost estimating services. If you are putting together a bid, see our bid preparation guide or check pricing for a quote.