Fully Burdened Labor Rate Calculator
Calculation Results
Understanding the Fully Burdened Labor Rate
When calculating the true cost of an employee, many business owners make the mistake of looking only at the gross hourly wage. However, the fully burdened labor rate provides a much more accurate picture of what an employee actually costs the company per productive hour worked.
What is a Fully Burdened Labor Rate?
The fully burdened labor rate is the total cost a company pays to employ a person for one hour of productive work. It includes the base salary plus all additional costs (the "burden") associated with that employee, such as payroll taxes, insurance, benefits, and administrative overhead.
Components of the Labor Burden
- Payroll Taxes: Employer contributions to Social Security, Medicare (FICA), and state/federal unemployment insurance.
- Insurance: Health, dental, vision, life, and workers' compensation insurance premiums.
- Paid Time Off (PTO): Hours paid for vacation, sick leave, and holidays where no production occurs.
- Retirement Benefits: 401(k) matching or pension contributions.
- Overhead: Costs for office space, specialized equipment, uniforms, software licenses, and training.
The Calculation Formula
To calculate the rate manually, you follow these steps:
- Calculate Total Annual Cost: (Annual Salary) + (Annual Taxes) + (Annual Benefits) + (Annual Overhead).
- Calculate Productive Hours: (Total Annual Work Hours) – (PTO/Holiday Hours).
- Divide: Total Annual Cost / Productive Hours = Fully Burdened Hourly Rate.
Example Calculation
Consider an employee with the following profile:
- Base Hourly Wage: $30.00
- Standard Hours: 2,080 (40 hours/week * 52 weeks)
- Payroll Taxes (12%): $7,488
- Annual Benefits: $10,000
- Annual Overhead: $4,000
- PTO/Holidays: 160 hours
Step 1: Annual Salary = $30 * 2,080 = $62,400.
Step 2: Total Cost = $62,400 + $7,488 + $10,000 + $4,000 = $83,888.
Step 3: Productive Hours = 2,080 – 160 = 1,920.
Step 4: Burdened Rate = $83,888 / 1,920 = $43.69 per hour.
In this example, while the employee is paid $30/hour, they actually cost the business $43.69 for every hour they are actually working. This difference is critical for setting service prices and ensuring profitability.