See the true hourly cost of an employee once taxes, benefits and other costs are added to the wage.
Annual wages = wage × paid hours.
Burden costs = wages × (tax % + insurance %) + benefits + other costs.
Burden rate = burden costs ÷ wages × 100.
Cost per productive hour = (wages + burden) ÷ (paid hours − paid non-working hours).
A cleaning company pays $22 an hour for 2,080 paid hours, including 120 hours of paid holidays and vacation. With the owner’s own figures of 10% payroll taxes, 4% insurance, $3,000 benefits and $500 other costs, burden is $9,906, a burden rate of 21.6%. The true cost is $26.76 per paid hour and $28.40 per productive hour.
Use it to price jobs, build quotes or decide between overtime and a new hire. Contractors, cleaners and field service businesses often underprice work because they use the wage instead of the full cost.
Enter your own tax and insurance percentages. They depend on your state, industry and insurer, so this calculator does not assume any rates.
An electrical contractor pays a journeyman $30 an hour for 2,080 paid hours, 160 of them holidays, vacation and paid training. With 9% payroll taxes, 7% workers’ comp and liability, $6,500 in benefits and $1,200 for tools and phone, burden is $17,684 on wages of $62,400, a 28.3% burden rate. The true cost is $38.50 per paid hour and $41.71 per productive hour, the number to start from when setting a billing rate.
Cost per productive hour is usually the more useful figure, because it spreads paid time off over the hours the person actually works. The result is only as good as your percentages: unemployment rates, workers’ comp class rates and benefit premiums change at renewal. Some payroll taxes, such as unemployment taxes, stop at a yearly wage limit, so a flat percentage can overstate burden for higher earners late in the year.
Your own: from your accountant, payroll provider and insurer. They vary by state, industry and claims history.
Holidays and vacation are paid but no work is billed, so each worked hour must cover them.
No. Rent, vehicles and office costs are overhead. Add them in your pricing separately.
No. That compares labor cost with sales.
Payroll tax and workers’ comp percentages apply to overtime pay too, so a burden based on straight-time wages understates the real cost. Raise paid hours to include the expected overtime, or add the overtime premium you expect under other yearly costs.
Often, because part-timers may not get health benefits while payroll taxes still apply as a percentage of wages. Run a separate calculation with their paid hours, such as 1,040 a year for 20 hours a week, and their actual benefit cost.
More for the same job
Instead of adding up timesheets before you open the labor burden calculator, let EZTime total employee hours. Book a demo to see it with your team.