What Is Labor Burden?
Labor burden is the employer's full cost of having someone on payroll — beyond just the wage. It explains why a $20/hr employee doesn't cost $20/hr. This page covers the definition, what's included, and why it matters. For the calculation formula and worked example, see How to Calculate Labor Burden.
Definition
When an employee earns $20/hr, their employer does not pay just $20/hr. The true cost includes federal and state payroll taxes, insurance, paid leave, and benefits — all of which are the employer's legal or contractual obligation. The sum of all these additional costs is called the labor burden.
Labor burden rate is typically expressed as a percentage above base wages. A 35% burden rate on a $20/hr employee means the true cost to the employer is $27/hr.
What Is Included in Labor Burden?
FICA (Social Security + Medicare)
Employers match the employee's 7.65% FICA contribution — 6.2% for Social Security (on wages up to the annual wage base) and 1.45% for Medicare (no cap).
Federal Unemployment Tax (FUTA)
0.6% on the first $7,000 of wages per employee per year (after state credit). Paid entirely by the employer, not the employee.
State Unemployment Tax (SUTA)
Varies significantly by state and employer experience rating. Typically 1–5% on a limited wage base.
Workers' Compensation Insurance
Ranges from under 1% (low-risk office) to over 20% (roofing, hazardous trades). One of the largest variables in labor burden for field workers.
Health Insurance & Benefits
Employer health insurance contributions, dental, vision, life insurance, and any retirement plan matching (401k, etc.).
Paid Time Off
Vacation, sick leave, and holidays represent hours paid without productive output — a real cost that should be included in burden calculations.
Typical Labor Burden Rates
| Industry / Role | Typical Burden Rate |
|---|---|
| Office / administrative | 22–30% |
| Light manufacturing | 28–38% |
| General construction | 30–45% |
| Roofing / hazardous trades | 40–65%+ |
Rates vary by state, employer size, and benefit package. Calculate your own using the Labor Burden Calculator.
Why Labor Burden Matters
If you price jobs using only an employee's hourly wage, you will consistently underprice and lose money on labor. Every bid, every project estimate, every labor cost in your P&L should use the burdened hourly rate — not the raw wage.
For contractors, this is the starting point for building a billable labor rate that also covers overhead and profit.
Frequently Asked Questions
What is a typical labor burden rate?
25–40% is the range for most US employers. Office roles with minimal benefits sit at the low end; construction and manufacturing with expensive workers' comp land at the high end.
Does labor burden include overhead?
Some employers include allocated overhead in their burden rate; others track overhead separately. Either approach works as long as overhead is captured somewhere in pricing.
How is labor burden different from labor rate?
Labor burden is the employer's internal cost. Labor rate (billable rate) is what you charge a client — it includes burden, overhead, and profit margin.
Last reviewed: August 2026
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