The Employee Benefit (EB) Rate—often referred to as the Fringe Benefit Rate or Burden Rate—is a critical metric for businesses, non-profits, and research institutions. It represents the percentage of an employee's base salary that must be allocated to cover non-wage costs. Understanding this rate is essential for accurate budgeting, grant proposals, and determining the true cost of hiring.
How to Calculate EB Rate
The EB Rate is calculated by dividing the total cost of all fringe benefits by the total base salary paid to an employee (or a group of employees). The result is expressed as a percentage.
To get an accurate EB rate, you must include all mandatory and voluntary expenses incurred beyond the gross salary. Common components include:
Mandatory Payroll Taxes: Employer portion of Social Security (FICA), Medicare, Federal and State Unemployment Insurance (FUTA/SUTA).
Health Insurance: The employer's contribution to medical, dental, and vision premiums.
Retirement Plans: Employer matching contributions to 401(k), 403(b), or pension funds.
Paid Time Off (PTO): While technically part of salary, detailed accounting sometimes separates vacation and sick leave accruals.
Workers' Compensation: Insurance premiums based on risk codes.
Other Perks: Life insurance, tuition reimbursement, wellness programs, and bonuses.
Why is the EB Rate Important?
1. True Cost Analysis: A salary of $75,000 might actually cost the company $97,500 if the EB Rate is 30%. Failing to account for this can lead to underpricing services or products.
2. Grant Proposals: For academic and research institutions, federal grants usually require a negotiated "Fringe Benefit Rate" to be applied to all salary requests to ensure the grant covers the full cost of personnel.
3. Hiring Decisions: When comparing contractors vs. full-time employees, the EB Rate helps normalize the comparison. A contractor rate of $60/hour might be cheaper than an employee at $45/hour once the 30%+ EB load is applied.