The fully burdened labor rate is a critical metric for businesses that bill clients for their employees' time. It represents the total cost associated with employing an individual, including not just their base salary but also all additional expenses incurred by the employer. Accurately calculating this rate is essential for accurate project pricing, profitability analysis, and understanding the true cost of labor.
Components of the Fully Burdened Labor Rate:
Base Hourly Wage: This is the direct compensation paid to the employee for their work.
Benefits: This encompasses a wide range of employee benefits, such as health insurance, retirement contributions (401k matching), life insurance, paid time off (vacation, sick leave), and other perks. These costs are a significant portion of the employer's expense.
Payroll Taxes: Employers are responsible for various taxes, including Social Security, Medicare, and unemployment taxes (federal and state). These are typically calculated as a percentage of the employee's wages.
Overhead Costs: These are indirect costs associated with employing an individual that are not directly tied to their salary but are necessary for them to perform their job. This can include office space, equipment, software licenses, utilities, HR support, and administrative staff. Often, a percentage of the base wage is allocated to cover these shared costs.
Profit Margin: For businesses that operate on a project basis, a desired profit margin needs to be factored into the billable rate. This ensures the business remains profitable after all costs are covered.
Billable Hours: It's important to consider that employees are not always "billable" for every hour they are employed. Factors like administrative tasks, training, and internal meetings reduce the number of hours that can be directly billed to clients. The billable hours per year helps in converting the total annual cost into an hourly rate.
Why is it Important?
Knowing your fully burdened labor rate allows you to:
Price Services Competitively and Profitably: Ensure your quotes cover all costs and generate a healthy profit.
Make Informed Business Decisions: Understand the true cost of hiring and retaining employees, aiding in budget planning and resource allocation.
Evaluate Project Viability: Determine if a project's potential revenue justifies the labor costs involved.
Track Employee Profitability: Identify which projects and clients are most and least profitable based on labor costs.
var calculateFullyBurdenedRate = function() {
var baseHourlyWage = parseFloat(document.getElementById("baseHourlyWage").value);
var benefitsPercentage = parseFloat(document.getElementById("benefitsPercentage").value);
var payrollTaxesPercentage = parseFloat(document.getElementById("payrollTaxesPercentage").value);
var overheadPercentage = parseFloat(document.getElementById("overheadPercentage").value);
var profitMarginPercentage = parseFloat(document.getElementById("profitMarginPercentage").value);
var billableHoursPerYear = parseFloat(document.getElementById("billableHoursPerYear").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
if (isNaN(baseHourlyWage) || isNaN(benefitsPercentage) || isNaN(payrollTaxesPercentage) || isNaN(overheadPercentage) || isNaN(profitMarginPercentage) || isNaN(billableHoursPerYear) ||
baseHourlyWage < 0 || benefitsPercentage < 0 || payrollTaxesPercentage < 0 || overheadPercentage < 0 || profitMarginPercentage < 0 || billableHoursPerYear <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields. Billable hours must be greater than zero.";
return;
}
var benefitsCost = baseHourlyWage * (benefitsPercentage / 100);
var payrollTaxesCost = baseHourlyWage * (payrollTaxesPercentage / 100);
var overheadCost = baseHourlyWage * (overheadPercentage / 100);
var directCostPerHour = baseHourlyWage + benefitsCost + payrollTaxesCost + overheadCost;
// To calculate profit margin correctly on the final billable rate,
// we need to use a formula that accounts for profit being a percentage of the total.
// var B = Billable Rate, C = Total Cost per Hour (directCostPerHour)
// B = C + (Profit Margin % of B)
// B = C + (ProfitMarginPercentage / 100) * B
// B – (ProfitMarginPercentage / 100) * B = C
// B * (1 – ProfitMarginPercentage / 100) = C
// B = C / (1 – ProfitMarginPercentage / 100)
var totalCostFactor = 1 – (profitMarginPercentage / 100);
if (totalCostFactor <= 0) {
resultDiv.innerHTML = "Profit margin cannot be 100% or more.";
return;
}
var fullyBurdenedRate = directCostPerHour / totalCostFactor;
var totalAnnualCost = fullyBurdenedRate * billableHoursPerYear;
resultDiv.innerHTML = "