How to Calculate Your True Fully-Burdened Labor Rate as a Contractor

Ask most contractors what their labor rate is and they'll tell you their employee's hourly wage. That's not their labor rate — that's their biggest pricing mistake. The true cost of an employee is significantly higher than their wage, and if you're not accounting for all of it in your bids, you're losing money on every job.

What Is a Fully-Burdened Labor Rate?

Your fully-burdened labor rate is the total cost per hour to employ a worker — including their wage, all payroll taxes, insurance, benefits, and other employment costs. It's the number you should be using when you estimate labor on any job.

What Goes Into Labor Burden?

Here's everything that needs to be included:

• FICA — Social Security (6.2%) and Medicare (1.45%) — you pay this as the employer on top of the employee's wage

• FUTA / SUTA — Federal and state unemployment taxes

• Workers Compensation Insurance — varies significantly by trade. Roofing can be 20-25%. Electrical might be 8-10%.

• General Liability Insurance — typically 3-5% of payroll

• Health Insurance — if you provide it, allocate the cost per hour worked

• Retirement / 401k Match — if applicable

• PTO and Vacation — employees get paid for days they don't work. Spread that cost across all hours worked.

• Tools and PPE — the cost of providing tools, safety equipment, and uniforms

A Real Example

Let's say you have an electrician earning $38/hour. Here's what the full burden looks like:

• Base wage: $38.00

• FICA (7.65%): $2.91

• FUTA/SUTA (3.6%): $1.37

• Workers Comp (9%): $3.42

• General Liability (4%): $1.52

• Health Insurance: $5.00/hr

• PTO (10 days/year): $1.83/hr

• Tools & PPE: $0.75/hr

• Total Burden: $16.80/hr

• Fully Burdened Rate: $54.80/hr

That's 44% more than the base wage. If you're bidding labor at $38/hour you're losing $16.80 on every hour that employee works.

Setting Your Billing Rate

Once you have your fully-burdened rate, you need to add overhead and profit to arrive at your billing rate. A common approach: divide your burdened rate by your target gross margin.

• At 30% gross margin: $54.80 ÷ 0.70 = $78.29/hr billing rate

• At 25% gross margin: $54.80 ÷ 0.75 = $73.07/hr billing rate

This is the rate you use in your estimates — not the employee's wage.

Do This for Every Classification

Your helper, journeyman, foreman, and superintendent all have different wages and potentially different burden rates (especially workers comp). Build a separate calculation for each classification and use the right rate for each type of labor in your bids.

Our contractor financial toolkits at Hilkey Financial Group include a Labor Rate Calculator tab that does all of this automatically for up to 5 crew classifications. Just enter your wages and rates and it calculates your fully-burdened rate and recommended billing rates at 20%, 25%, and 30% gross margin targets.

Stop underbidding your labor. Download the contractor toolkit for your trade at HilkeyFinancial.com or schedule a free consultation to review your current pricing.