Your Workers Cost 25% to 50% More Than Their Base Pay
If you are bidding jobs based on what you pay your crew per hour or per piece, you are underbidding every single job. That is not an exaggeration. The gap between what you write on a paycheck and what that employee actually costs you is called labor burden, and in construction it typically ranges from 25% to 50% on top of base wages.
When I was running roofing crews, I used to bid jobs using my crew's piece rate pay as the labor cost. I would look at a 30-square job, multiply by what I was paying per square, and call that my labor number. Then I would wonder why my profit margin was thinner than my estimate said it should be. The answer was always labor burden. I was not accounting for payroll taxes, workers' comp, insurance, or any of the other costs that come with having employees.
Once I figured out my fully burdened labor rate, everything changed. My bids got more accurate. My job costing actually reflected reality. And I stopped accidentally losing money on jobs I thought were profitable.
Here is how to calculate your labor burden step by step, with real numbers you can apply to your own crew.
What Is Labor Burden?
Labor burden is the total cost of employing someone beyond their base pay. It includes every mandatory and voluntary expense tied to having that person on your payroll. When people talk about the "true cost" of an employee, they are talking about base pay plus labor burden.
Labor burden includes:
- Payroll taxes (FICA, FUTA, SUTA)
- Workers' compensation insurance
- General liability insurance (employee portion)
- Health insurance and benefits
- Paid time off
- Retirement contributions
- Training and safety costs
- Tools, equipment, and vehicle costs
Labor burden does not include:
- The base wage or piece rate pay itself
- Materials and supplies
- Overhead costs not tied to individual employees (office rent, marketing, etc.)
The Labor Burden Formula
Here is the formula. It is straightforward once you have all the numbers:
Labor Burden Rate = Total Burden Costs / Total Base Pay
Fully Burdened Labor Rate = Base Pay Rate x (1 + Labor Burden Rate)
For example, if your burden costs add up to $14,560 per year for a worker earning $52,000 in base pay:
$14,560 / $52,000 = 0.28 or 28% labor burden rate
$25/hour x 1.28 = $32.00 fully burdened hourly rate
That $7.00 per hour difference is what most contractors miss when they bid jobs. Over a 2,080-hour work year, that is $14,560 per employee. For a 10-person crew, you are leaving $145,600 off your bids.
Use our Payroll Cost Calculator to run these numbers for your specific crew.
Breaking Down Every Burden Component
Let me walk through each cost component with real percentages and dollar amounts. I am using a $25/hour base rate ($52,000 annual) as the example since that is close to the average for many construction trades.
FICA Taxes: 7.65%
This is the employer's share of Social Security (6.2%) and Medicare (1.45%). Every employer pays this on every dollar of wages. It is not negotiable, it does not vary by state, and it does not go away.
- Annual cost on $52,000: $3,978
- Per hour: $1.91
Note: Social Security tax applies only to the first $184,500 of earnings in 2026. That cap will not affect most construction workers, but it matters for highly paid foremen or superintendents.
FUTA: 0.6%
Federal Unemployment Tax is 6.0% on the first $7,000 of each employee's wages. You get a 5.4% credit for paying state unemployment on time, so the effective rate is 0.6%.
- Annual cost: $42 per employee
- Per hour: $0.02
Small but non-zero across a crew.
SUTA: 1% to 5%
State Unemployment Tax varies by state, by your industry, and by your experience rating. Construction companies tend to have higher rates because the industry has higher turnover and more seasonal layoffs. New companies start at a default rate, which is often higher.
Typical range for established construction companies: 2% to 4% on taxable wages. The taxable wage base varies by state — anywhere from $7,000 (same as FUTA) to over $56,000.
For this example, I will use 3% on the first $40,000:
- Annual cost: $1,200
- Per hour: $0.58
Workers' Compensation: 5% to 30%+
Here is where it gets expensive. Workers' comp rates in construction are dramatically higher than office or retail work because the risk is higher. Rates are expressed as a dollar amount per $100 of payroll, and they vary by trade classification.
Typical workers' comp rates by trade:
| Trade | Rate per $100 of Payroll | Effective Percentage |
|---|---|---|
| General construction labor | $8 - $15 | 8% - 15% |
| Carpentry / Framing | $12 - $20 | 12% - 20% |
| Concrete work | $10 - $18 | 10% - 18% |
| Electrical | $5 - $10 | 5% - 10% |
| Plumbing | $5 - $9 | 5% - 9% |
| Roofing | $15 - $25 | 15% - 25% |
| Steel erection | $20 - $35 | 20% - 35% |
| Painting | $8 - $14 | 8% - 14% |
| Drywall | $10 - $16 | 10% - 16% |
These rates are significantly affected by your claims history. A roofing company with no claims might pay $15 per $100. The same company after a few claims could be paying $25 or more.
For our $25/hour roofer at $20 per $100 of payroll:
- Annual cost on $52,000: $10,400
- Per hour: $5.00
Workers' comp alone can add $5 per hour to your true labor cost. This is the single biggest burden component for most construction trades, and it is the one contractors most often underestimate. Check our Workers' Comp Estimator to see what it looks like for your specific trade and state.
General Liability Insurance
General liability is not always calculated as a percentage of payroll — some policies are flat premiums. But you should allocate a portion of your GL premium to each worker for accurate job costing.
A typical roofing contractor might pay $25,000 to $40,000 per year for GL insurance. With a 10-person crew:
- Per-employee allocation: $2,500 to $4,000
- Per hour: $1.20 to $1.92
For this example, I will use $3,000 per employee, or $1.44 per hour.
Health Insurance: $0 to $700/month per Employee
If you offer health insurance, this is a major burden cost. Under the ACA, employers with 50 or more full-time equivalent employees must offer health coverage or pay a penalty. Smaller companies are not required to, but many do to attract and retain workers in a tight labor market.
Typical employer contribution for individual coverage: $400 to $700 per month. Family plans cost significantly more.
At $550/month:
- Annual cost: $6,600
- Per hour: $3.17
If you do not offer health insurance, this line item is zero. But know that the contractors competing with you for workers might offer it, and that is part of why your best guys leave.
Paid Time Off and Holidays
If you provide paid holidays, sick time, or vacation days, those are burden costs. You are paying for hours where no production happens.
Six paid holidays (48 hours) plus five vacation days (40 hours) = 88 hours of paid non-productive time.
- Annual cost at $25/hour: $2,200
- Per hour worked: $1.06
Retirement Contributions
If you offer a 401(k) match or contribute to a retirement plan, that is burden. A typical 3% match on a $52,000 salary:
- Annual cost: $1,560
- Per hour: $0.75
Training and Safety
OSHA-required training, safety meetings, certifications, first aid supplies, and PPE all cost money. For construction, budget $500 to $1,500 per employee per year.
- At $1,000/year per hour: $0.48
Tools, Equipment, and Vehicles
Company-provided tools, equipment maintenance, and vehicle costs can be allocated per worker. This varies wildly, but $1,000 to $3,000 per employee per year is common for many trades.
- At $2,000/year per hour: $0.96
Putting It All Together: Real Example
Let me add up everything for our $25/hour roofer:
| Burden Component | Annual Cost | Per Hour | Percentage |
|---|---|---|---|
| FICA | $3,978 | $1.91 | 7.65% |
| FUTA | $42 | $0.02 | 0.08% |
| SUTA (3%) | $1,200 | $0.58 | 2.31% |
| Workers' Comp ($20/$100) | $10,400 | $5.00 | 20.00% |
| General Liability | $3,000 | $1.44 | 5.77% |
| Health Insurance | $6,600 | $3.17 | 12.69% |
| PTO/Holidays | $2,200 | $1.06 | 4.23% |
| 401(k) Match (3%) | $1,560 | $0.75 | 3.00% |
| Training/Safety | $1,000 | $0.48 | 1.92% |
| Tools/Equipment | $2,000 | $0.96 | 3.85% |
| Total Burden | $31,980 | $15.38 | 61.50% |
Fully burdened rate: $25.00 + $15.38 = $40.38 per hour
That $25/hour roofer actually costs you over $40 per hour. If you are bidding jobs at $25, you are losing $15.38 on every hour worked before you even think about materials, overhead, or profit.
Now, not every company has all these costs. If you do not offer health insurance, a 401(k), or paid time off, your burden drops significantly. A bare-minimum burden (just taxes and workers' comp) for a roofer might look like this:
| Component | Percentage |
|---|---|
| FICA | 7.65% |
| FUTA | 0.08% |
| SUTA | 2.31% |
| Workers' Comp | 20.00% |
| Minimum burden | 30.04% |
Even at the bare minimum, your $25/hour worker costs you $32.51 per hour. That 30% gap is not optional — it is the cost of having a legal employee.
Burden Rates by Trade
Different trades have different burden profiles, mainly because workers' comp rates vary so much. Here are typical total burden percentages (all mandatory costs plus basic benefits) by trade:
| Trade | Typical Total Burden | Fully Burdened Multiplier |
|---|---|---|
| Roofing | 40% - 65% | 1.40x - 1.65x |
| Framing | 35% - 55% | 1.35x - 1.55x |
| Concrete | 30% - 50% | 1.30x - 1.50x |
| Drywall | 30% - 45% | 1.30x - 1.45x |
| Painting | 25% - 40% | 1.25x - 1.40x |
| Electrical | 25% - 38% | 1.25x - 1.38x |
| Plumbing | 25% - 38% | 1.25x - 1.38x |
| General Labor | 28% - 42% | 1.28x - 1.42x |
High-risk trades like roofing and steel work carry the heaviest burden because workers' comp premiums dominate the calculation. Lower-risk trades like electrical and plumbing have a smaller spread between base pay and true cost.
How Labor Burden Affects Job Costing
If you are not using your fully burdened rate in your job costing, every number you look at is wrong. Your labor cost per job is understated. Your profit margin is overstated. And your bids are too low.
Here is a practical example. You are bidding a framing job. Your crew can frame the house in 5 days with a 4-person crew working 8 hours per day. That is 160 labor hours.
Without burden: 160 hours x $28/hour = $4,480 labor cost
With burden (45% rate): 160 hours x $40.60/hour = $6,496 labor cost
That is a $2,016 difference on a single job. If you bid the labor at $4,480, you just underbid by $2,016 before materials, overhead, and profit. That is not a rounding error — it is the difference between making money and working for free.
Use our Job Profit Calculator to see how burden affects your margins, and check the Bid Calculator to build burden into your estimates from the start.
How Labor Burden Affects Piece Rate Pay
If you pay piece rate, labor burden still applies to every dollar you pay. When you set a piece rate of $45 per square for roof installation, your actual cost is not $45 per square. It is $45 times your burden multiplier.
At a 45% burden rate: $45 x 1.45 = $65.25 true cost per square
That means the revenue you need per square to cover just labor is $65.25, not $45. If you are charging the customer $85 per square for labor, your actual labor margin is:
($85 - $65.25) / $85 = 23.2%
Not the 47% you thought it was when you only looked at the base piece rate.
This is why understanding labor burden is critical for setting fair piece rates that work for both you and your crew. You need rates that motivate your workers while still leaving enough margin after burden costs to run a profitable business.
How to Calculate Your Own Labor Burden
Here is the step-by-step process:
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Get your actual workers' comp rate from your insurance carrier. Do not guess. This is usually your biggest variable.
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Look up your SUTA rate on your state's unemployment tax notice. It is on the annual rate notice they send every January.
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Add up your fixed costs — FICA (7.65%), FUTA (0.6% effective), and your SUTA rate. These are non-negotiable.
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Calculate your per-employee insurance costs — GL allocated per worker, health insurance if offered.
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Add voluntary benefits — PTO, retirement match, training, tools, vehicle costs.
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Total everything up and divide by annual base pay to get your burden percentage.
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Multiply any base rate by (1 + burden percentage) to get the fully burdened rate.
Our Payroll Cost Calculator does this math for you. Plug in your base rates and burden components, and it spits out the true cost per worker.
The Biggest Mistake: Ignoring Burden in Bids
I talk to contractors every week who know their labor burden exists but do not build it into their bids. They treat it as an overhead cost that will "come out in the wash." It does not. It comes out of your profit margin.
Every bid you submit should use fully burdened labor rates. Every job costing report should reflect the true cost of labor. Every piece rate you set should account for the burden multiplier when you calculate the revenue needed per unit.
If you are not tracking this, you are not tracking your real costs. And if you are not tracking your real costs, you are guessing at your profit. Read our guide on job costing for contractors for a complete framework, and use the Job Site Cost Estimator to build accurate estimates that include every dollar of labor burden.
The contractors who make money are the ones who know their numbers. Labor burden is the number most contractors get wrong. Do not be one of them.