Quick answer: Your labor burden rate is the total of all employment costs beyond an employee’s base wage — payroll taxes, workers’ compensation, insurance, benefits, and paid time off — expressed as a percentage of that wage. For most New York contractors it runs 40% to 60%, meaning a $30/hour worker actually costs $42 to $48 per hour on the job.
What “labor burden” actually means
Labor burden is the difference between what you pay a worker and what that worker truly costs you. The base hourly wage is only the visible part. Underneath it sit employer payroll taxes, workers’ compensation premiums, general liability tied to payroll, health and retirement benefits, and the paid hours when nobody is producing revenue — holidays, vacation, sick time, and training.
Contractors who bid and job-cost using the raw wage systematically underprice their work. On a prevailing-wage or competitive bid, a 45% burden you forgot to include is the margin you thought you had.
Why the burden rate decides whether a job makes money
Every estimate, every change order, and every WIP schedule depends on an accurate labor cost. If your estimator prices a framer at $30 but that framer costs $44 loaded, a 1,000-hour job carries a hidden $14,000 cost you never bid. Across a year of jobs, that gap is often the entire difference between a profitable contractor and one that stays busy but broke.
An accurate burden rate lets you: bid with confidence, compare in-house crews against subs on equal footing, calculate the real cost of overtime, and produce job-cost reports that reflect reality instead of wishful math.
What goes into the burden
Build your rate from these components. Some are legally required; others depend on what you offer.
- Employer FICA — 7.65% of wages (6.2% Social Security up to the annual wage base, plus 1.45% Medicare with no cap).
- Federal unemployment (FUTA) — 6.0% on the first $7,000 of wages, reduced to about 0.6% when you receive the full state credit.
- New York state unemployment (SUI) — an experience-rated percentage on wages up to the state wage base; new and higher-claim employers pay more.
- Workers’ compensation — priced per $100 of payroll by trade classification. Roofing, framing, and steel carry far higher rates than office or supervisory codes, so burden varies by worker.
- General liability and umbrella insurance — the portion of premiums rated on payroll.
- Health insurance, retirement match, and other benefits — the employer share only.
- Paid non-productive time — holidays, vacation, sick days, safety meetings, and training. These are paid hours that produce no billable output, so they raise the cost of every productive hour.
- Small tools, PPE, uniforms, vehicle allowances, and per diem — where you provide them.
A crew hour almost never costs what the wage says it costs
Taxes, insurance, workers comp, fringe, PTO and non-productive time can add forty to sixty percent on top before you have made a dollar. Bid off the base wage and you are quietly donating the difference on every hour of every job. The number is knowable; most contractors have simply never sat down and calculated theirs.
We calculate this from your actual payroll and insurance data. Call 631-349-1661 or send us the details and we will give you a straight answer.
How to calculate your labor burden rate
- Start with annual base wages for the worker (or crew): hourly rate multiplied by paid hours per year (typically 2,080 for a full-time employee).
- Add every employer cost from the list above for that same year.
- Subtract non-productive paid hours from 2,080 to find actual productive (billable) hours. This step is what most contractors skip.
- Divide fully loaded annual cost by productive hours to get the true cost per productive hour.
- Express it as a rate: (fully loaded hourly cost − base wage) ÷ base wage = your burden percentage.
Worked example: a $30/hour carpenter
Illustrative figures — use your own rates and NY workers’ comp class codes.
| Cost component | Per hour |
|---|---|
| Base wage | $30.00 |
| Employer FICA (7.65%) | $2.30 |
| FUTA + NY SUI (blended est.) | $0.90 |
| Workers’ comp ($12 per $100 payroll) | $3.60 |
| General liability (payroll-rated) | $0.60 |
| Health insurance (employer share) | $2.89 |
| Retirement match (3%) | $0.90 |
| Paid time off / holidays / training | $3.00 |
| Fully burdened cost | $44.19 |
Burden = ($44.19 − $30.00) ÷ $30.00 = 47%. That carpenter you thought cost $30 actually costs about $44 every productive hour. Bid the raw wage and you give away 47% before you ever hit a profit margin.
Common labor-burden mistakes
- Using 2,080 hours as productive hours. After PTO, holidays, and downtime, productive hours are closer to 1,850–1,900 — which raises the true hourly cost.
- Applying one blanket burden rate to every worker. A high workers’ comp class (roofer) and a low one (foreman doing supervision) can differ by 20 points. Blend only when the mix is stable.
- Forgetting overtime burden. The wage goes to 1.5x, but FICA and workers’ comp ride on the higher figure too — overtime is more expensive than a straight 50% bump.
- Leaving burden out of change orders. Extra work priced at bare wage erodes the margin the base contract was supposed to protect.
- Never updating the rate. Workers’ comp rates, benefit costs, and unemployment experience ratings change yearly. A stale burden rate quietly mis-prices every job.
Frequently asked questions
What is a typical labor burden rate for construction?
Most contractors land between 40% and 60%, depending heavily on workers’ compensation class codes and how rich their benefits are. Trades with high comp rates (roofing, steel, framing) sit at the top of that range.
Is labor burden the same as overhead?
No. Labor burden is the direct cost of employing someone and belongs in job costs. Overhead is your general business cost — office, admin, marketing — recovered through a separate markup. Mixing them distorts both your job costs and your pricing.
Should prevailing-wage fringe be part of the burden?
On public work, the required supplemental (fringe) benefit is part of the total cost of that worker on that job. Whether you pay it as cash wages or fund a bona fide plan changes your payroll-tax exposure, so it should be modeled deliberately, not lumped into a generic rate.
How often should I recalculate my burden rate?
At least annually, and whenever your workers’ comp rates, benefit plans, or unemployment experience rating change. Many contractors review it each January alongside new insurance renewals.
Does labor burden apply to subcontractors?
No. You pay subs on a 1099 basis, so their burden is built into their price. That is exactly why an accurate in-house burden rate matters — it is the only way to compare a subcontractor’s bid to the true cost of doing the work with your own crew.
Get your job costs right the first time
An accurate labor burden rate is the foundation of every profitable bid and every reliable WIP schedule. Our construction accounting practice helps New York contractors build burden rates by trade, wire them into estimating and job costing, and see real margin on every job. Learn how we handle the numbers behind the numbers on our construction job costing and WIP services page, then reach out for a conversation about your crews.
This article is for general informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified professional about your specific situation.
See the reports: Our Construction Reporting Package shows sample job costing, WIP, labor efficiency and burden reports we build for contractor clients.
Burden and the billing position. Understated labor burden makes costs-to-date look lower than they are, which inflates estimated gross profit and pushes a job to look overbilled when it is not. Burden accuracy is not a payroll detail — it flows straight into the WIP schedule and the balance sheet.
Burden feeds the bid, not just the books. A burden rate is only useful if it reaches the estimate. Pricing new work with insurance and prevailing wage built in is where an accurate burden rate actually earns its keep.
Labor burden is the largest hidden cost on a job, but it is not the only one. In New York, the sales tax a contractor pays on materials for a capital improvement is a real, unrecoverable job cost that many estimators leave out. Our breakdown of New York sales tax on construction work shows how to price it correctly.
Burden allocation fails quietly when payroll taxes, insurance and fringe costs all sit in one lump account. A chart of accounts designed for construction gives each burden component its own line, so the rate you calculate can actually be traced back to the ledger when someone questions it.
The fringe credit reported on a federal certified payroll is the same figure that belongs in your burden rate — see Form WH-347.
A burden rate is only as good as the hours underneath it. On government work those hours carry their own compliance standard, and a rate built on records that fail a floor check will not survive review either — see DCAA timekeeping requirements.
Vehicle allowances, tool allowances and per diem all sit inside burden, and each becomes taxable wages if the plan behind it fails. That distinction is worth checking against the accountable plan rules before it shows up in a payroll examination.
Talk to an accountant who works in your industry
Precision Accounting & Consulting works with contractors, law firms, medical practices and property owners across the country. If something on this page raised a question about your own books, send it over and we will give you a straight answer.