How to Calculate Your Fully Burdened Labor Rate
If you pay a carpenter $28 an hour and bill their time at $45, it feels like you're making $17 an hour on their labor. You're not. Once payroll taxes, workers comp, benefits, non-billable time, and your overhead are counted, that $28 wage often costs you $50–65 per billable hour. Contractors who bid off the wage instead of the burdened rate are quietly losing money on labor — and wondering why profitable-looking jobs come out thin.
The fix is a number every contractor should know and surprisingly few have calculated: the fully burdened labor rate — what one hour of your crew's billable time actually costs your business.
What goes into labor burden
Start with the wage, then add everything you pay because that person works for you:
- Payroll taxes — employer FICA, FUTA, and state unemployment, typically 9–12% of wages.
- Workers compensation — heavily trade- and state-dependent; carpentry classes commonly run 5–15% of payroll.
- Benefits and fixed extras — health contributions, retirement match, phone, small tool allowances, training.
- Paid, non-billable time — holidays, PTO, shop time, drive time, rained-out days. You pay for 2,080 hours a year; you can bill far fewer.
The two-step formula
Step 1 — Burdened cost per billable hour, per worker:
(Annual wages × (1 + payroll tax % + workers comp %) + annual benefits & extras) ÷ billable hours per year
Worked example. A carpenter at $28/hr, paid 2,080 hours: wages $58,240. Add 10% payroll taxes and 8% workers comp → $68,723. Add $7,500 in benefits and extras → $76,223 per year. If they bill 1,550 hours (75% utilization — a realistic number once weather, drive time, and shop days are honest), the burdened cost is $76,223 ÷ 1,550 = $49.18 per billable hour. The $28 wage was never the real number.
Step 2 — Add overhead recovery. Your rent, vehicles, insurance, marketing, and software exist so the crew can work — every billable hour has to carry a share. Divide annual overhead by total company billable hours and add it:
A small crew with $62,300 of annual overhead and 4,650 total billable hours needs $13.40 of overhead recovered per hour. Added to a blended burdened cost of $50.23, this crew's fully loaded labor rate is $63.63/hr. Any bid that prices their labor below that is paying the client for the privilege of working.
The mistakes that skew the number
Three errors show up constantly. Using 2,080 billable hours (nobody bills 100% of paid time — utilization for field crews is usually 65–80%). Forgetting that overhead exists at all, so "profitable" jobs quietly eat the rent. And treating the result as fixed — your burden rate changes when insurance renews, wages move, or you add a crew member, so recalculate a couple of times a year.
Then price with margin, not markup
Once you know your true cost, the second half of pricing is applying your target profit correctly — and that's where the markup-vs-margin confusion costs contractors real money. We wrote a separate guide on it: Markup vs. Margin for Contractors.
Or let the spreadsheet do all of this for you
The ToolboxSheets estimating workbook calculates your fully burdened rate from your real numbers, recovers overhead on every bid, and prices by margin — with a worked example included.
Get the workbook — $49