When I hire a journeyman plumber at $28 per hour, the real cost to my shop is closer to $41 per hour. That's a 46% burden multiplier—and I used to bid jobs without fully accounting for it.
I'm Danny Reeves, a master plumber and shop owner in the Southeast. For years, I watched my margins evaporate because I was bidding labor at straight hourly rates, forgetting about payroll taxes, workers' comp insurance, health benefits, and everything else that actually comes out of the job's profit. The BLS Employer Costs for Employee Compensation (ECEC) reports that benefits and taxes add 30–50% to wages depending on your trade and region. I needed a system—not a napkin calculation.
This article walks you through exactly how to build yours.
What Is Labor Burden Rate?
Labor burden rate is the total cost to employ one worker for one hour, expressed as a percentage above their base wage. It's every expense that makes a W-2 employee actually cost you money: payroll taxes, insurance, benefits, training, vehicle wear, and paid time off.
The formula is simple:
Burden Multiplier = (Total Annual Burden Costs ÷ Total Annual Wages) × 100%
If a worker earns $58,240 per year (40 hours × 52 weeks × $28/hr), and your total burden cost is $14,352, your burden multiplier is 24.6%. Their true loaded rate is $28 × 1.246 = $34.89 per hour.
But wait—that's not where most contractors stop. You're also not accounting for the hours they don't work (PTO, holidays, sick days). That's where a 46% multiplier comes from. If a worker is on payroll 2,080 hours per year but only bills 1,760 hours, you're spreading costs across fewer billable hours—raising the effective rate to $41.
Breaking Down the Burden Components
Let me walk through each line item. Every one of these is real money leaving your business.
FICA and Federal/State Payroll Taxes (15.3% total)
The IRS mandates 7.65% FICA per employee (Social Security 6.2% + Medicare 1.45%), and you match it dollar-for-dollar. That's 15.3% right there before you even think about state taxes.
On a $28/hr worker ($58,240 annually), FICA alone runs $8,910 per year. If your state has income tax withholding—and most do—add another 3–6%. My state (Tennessee) has no income tax, which saves me roughly $3,500 per worker annually. A contractor in California or New York is paying closer to 12–14% combined state + federal withholding.
Federal Unemployment Insurance (FUTA): 6.0% on the first $7,000 of wages per employee per year. For a $58,240 wage, that's $420 (flat-capped). Sounds minor, but multiply by 10 workers and you're at $4,200.
State Unemployment Insurance (SUTA): 2–5% depending on your state's rate and your experience rating. If you're a young company or had recent layoffs, expect the high end. Tennessee runs 2.7% for most businesses; California runs 4.4%. On $58,240, that's $1,572–$2,562 per worker, per year.
Total payroll tax burden: 15.3% FICA + 0.6% FUTA + 2–5% SUTA = 18–21% of wages.
Workers' Compensation Insurance (5–15% by trade)
This varies wildly by trade and state. The National Council on Compensation Insurance (NCCI) reports that plumbing runs 7–9% of payroll in most states, while roofing can hit 15–18%. Electrical is typically 5–7%. These rates reflect injury claim history in each trade.
For my plumbing shop, workers' comp costs $3,400–$4,700 per worker annually. That's 6–8% of a $58,240 wage. On a $60M revenue shop with 45 workers, workers' comp alone runs $150K–$200K per year—3–4% of gross revenue.
Workers' comp burden: 5–15% of wages, depending on trade and state.
Health Insurance (8–12% of wages, or $2.50–$4.00/hr per employee)
If you're offering health insurance, the employer share of premiums runs $12,000–$20,000 per employee per year for a family plan (2026 rates). Even for individual coverage, you're looking at $6,000–$9,000. Divide that by 2,080 hours and you're at $2.88–$9.60 per hour worked.
I offer a high-deductible plan with an HSA match. My average cost per worker is $18,000 annually. On a $28/hr wage, that's 31% burden just from health insurance. This is why many smaller shops don't offer health benefits—the cost is brutal.
Health insurance burden: 8–12% of wages, depending on plan and take-up rate.
Paid Time Off, Holidays, and Sick Leave (8–12%)
A standard PTO package is 15–20 days per year (120–160 hours). Add 6–8 federal holidays (48–64 hours). That's 168–224 hours per year where you're paying someone who isn't generating revenue.
If a worker is paid $28/hr for 168 PTO hours, that's $4,704 per year in paid time off. The trick is that it still costs you $28/hr—you're just not billing it out. If you only bill 1,760 of the 2,080 payroll hours (accounting for PTO + holidays), you're effectively spreading $28/hr across fewer billable hours.
PTO and holiday burden: 8–12% of wages depending on policy.
General Liability Insurance (1–3% of payroll)
Most commercial general liability policies cost $0.75–$2.50 per $100 of payroll, depending on your shop's claims history and scope of work. For a $58,240 wage, that's $435–$1,456 per worker annually. Divide by 2,080 hours and it's $0.21–$0.70/hr.
GL insurance burden: 1–3% of wages.
Training, Certifications, and Small Tools (2–4%)
I spend $800–$1,500 per technician per year on continuing education, EPA certifications, tool replacements, and safety gear. OSHA requires hard hats, vests, and boots replaced every 2–3 years. Background checks run $50–$100 per hire. Licensing and CE credits another $200–$400 annually.
Training and tools burden: 2–4% of wages.
Vehicle and Equipment Allocation (varies; estimate 1–3%)
If a worker uses a company vehicle, that's fuel, insurance, maintenance, and depreciation. A plumber who drives a service van that costs $50,000 and lasts 5 years is burning $10,000/year in depreciation alone, plus $3,000–$5,000 in fuel and maintenance. Spread across one technician working 1,760 hours, that's $7.39–$11.93/hr.
Not all shops allocate vehicle costs to individual workers. If you have a dispatch fleet, you might carve out a percentage of fleet costs. Many shops just eat it as overhead. For a realistic burden calculation, I'd recommend 1–3% of wages for vehicle allocation.
Vehicle allocation: 1–3% of wages, depending on fleet model.
Building Your Own Labor Burden Multiplier: A Worked Example
Let's say you have a union electrician at $45/hr (journeyman scale). Here's the annual breakdown:
Base wage:
- 2,080 hours × $45 = $93,600/year
Direct burden costs:
- FICA + FUTA + SUTA: 20% × $93,600 = $18,720
- Workers' comp (electrical): 6% × $93,600 = $5,616
- Health insurance (employer share): $18,000 (flat)
- PTO + holidays (160 hours): 160 × $45 = $7,200
- General liability: 2% × $93,600 = $1,872
- Training + certs: $1,200
- Vehicle allocation: 2% × $93,600 = $1,872
Total annual burden: $54,480
Burden multiplier: $54,480 ÷ $93,600 = 58.2%
Loaded hourly rate: $45 × 1.582 = $71.19/hr
But wait—you're only billing 1,760 of those 2,080 hours (320 hours PTO/sick/holidays). The true billable rate is:
Billable multiplier: ($93,600 + $54,480) ÷ (1,760 hours) = $84.05/hr
That union electrician costs you $84.05 per billable hour, not $45. If you bid residential work at $65/hr labor, you're losing $19.05/hr the moment that technician clocks in.
This is why so many shops fail on labor pricing. They don't know this number.
Factors That Change Your Burden Rate by Region and Trade
Workers' comp variance: Roofing and excavation trades run 12–18%, while office support might run 1–3%. Climbing a roof is expensive insurance.
State payroll taxes: Tennessee, Texas, Florida, and Nevada have no state income tax. California, New York, and Massachusetts add 5–14% in state withholding. That's a structural advantage for shops in no-income-tax states.
Health insurance costs: Group plans in rural areas cost $8,000–$14,000 per employee. Urban areas with more competition run $12,000–$20,000. If you're self-funded, costs vary even more wildly.
Union vs. non-union: Union workers have higher base wages but often lower health insurance costs (due to economies of scale in union plans). Non-union workers sometimes cost less on wages but burden is comparable because you're still buying workers' comp and health insurance if you want to retain staff.
Prevailing wage jobs: If 40% of your work is prevailing wage, your average burden rate climbs because prevailing wage jobs (especially public/federal) often require certified apprentices and union membership, raising insurance costs.
Stop doing this on a napkin. Use our free Labor Burden Calculator—it runs the numbers in 30 seconds, no signup required. Plug in your base wage, your state, and your trade, and it spits out your loaded rate.
Frequently Asked Questions
What if I don't offer health insurance?
Your burden rate drops 8–12%, but you'll likely struggle to retain skilled workers. Most trades have tight labor markets, and competitors who offer health benefits will pull your talent. In my shop, workers' comp and payroll taxes still run 22–25% even without health benefits. You're never getting below a 1.22× multiplier unless you're paying under the table, which I don't recommend.
Should I use the gross or net burden rate in my estimates?
Use gross (the full multiplier). Your estimate must account for every dollar that leaves your business to employ that worker. If you use net (wages only), you'll underbid and watch margins vanish. The only exception is if you already have a salaried manager—allocate a portion of their salary as overhead, not labor burden, since they don't vary with job count.
How often should I recalculate?
Annually, at minimum. Health insurance premiums, workers' comp rates, and PTO policies change every year. I recalculate in January so my burden rates are locked in for the bid season. If you experience a major claims event or hire a bunch of apprentices (lower wage = lower absolute burden dollars), recalculate mid-year.
Can I use an average burden rate across all trades?
If you have multiple trades (e.g., plumbing + HVAC), don't average them. Plumbing might be 1.40× while HVAC is 1.55× due to different workers' comp rates and average wages. Calculate each trade separately, then blend them for a company-wide average. If 60% of your hours are plumbing (1.40×) and 40% are HVAC (1.55×), your blended rate is 1.46×.
What about overhead allocation on top of burden?
Burden is just labor cost. Your estimate also needs markup for shop overhead (dispatcher, office rent, insurance, vehicles, tools) and profit margin. If your burden is $41/hr and your overhead is $15/hr, you need at least $56/hr in cost recovery before profit. A typical mark-up is 50–100% overhead, then 15–30% profit margin on top of that. So $41 burden + $20 overhead + $12 profit = $73/hr estimate.
If I'm fully booked, should I raise my labor rates to match burden?
Absolutely. If you're turning away work because you're at capacity, your labor rate should reflect the true cost of employment, not historical pricing. Raising rates keeps you from underselling and from burning out your team with overwork. A tech earning $28/hr that costs you $41/hr needs to generate $45–$50/hr in billing to be profitable. If you're only charging $35/hr, you lose money on every job.
Your Action Item for This Week
List your current employees by job title and base hourly wage (or salary-to-hourly conversion).
Gather your 2025 payroll records: total wages, payroll tax statements (941 forms), workers' comp premiums, and health insurance invoices.
Calculate your actual burden rate using our free Labor Burden Calculator. No signup. In-browser.
Compare to your current labor estimates. If your true burden is higher than what you bid, that's your profit leak.
Review your construction overhead costs markup guide to layer overhead on top of burden, then review construction wages by trade to benchmark your wages against regional averages.
If your burden multiplier is higher than 1.35×, you're in the danger zone for margin compression. Audit your health insurance, workers' comp coverage, and PTO policy. One unnecessary benefit is costing you 2–3% of gross revenue.
This is the number that separates shops that fail from shops that thrive. Know it cold.
