Not Understanding Your Labor Burden is Costing You $$$
What is Labor Burden?
Labor burden represents the true cost of employing someone beyond their base wage. In addition to hourly pay, labor burden includes payroll taxes, employee benefits, and other indirect costs associated with having an employee on your team.
These indirect costs can include items such as:
Employer payroll taxes
Health insurance and other benefits
Workers’ compensation and general liability insurance
Union dues, benefit contributions, and fringe benefits required under union agreements
Vehicles, fuel, and maintenance
Tools and safety equipment
Cell phones, uniforms, and even employee meals
Labor burden applies to all employees (both field and office) but in construction, the greatest impact is typically on field labor, which directly drives job costing and pricing.
How is Labor Burden Calculated?
Labor burden can be expressed in two common ways:
As a percentage of base labor, or
As a dollar amount per labor hour
A simple approach is to:
Add up all annual labor-related costs (wages + burden costs), and
Divide that total by the number of labor hours worked during the year
This gives you a labor burden rate per hour, showing the true cost of every hour an employee works.
Why Does Labor Burden Matter?
For most construction firms, labor burden typically ranges from 30%–60% of base pay. That means an employee earning $50 per hour may actually cost the company $65–$80 per hour once all burden costs are included.
This matters because construction estimates and billing are often based on hourly labor rates. Your client-facing labor rate should be built off the fully burdened labor cost, not just the base wage.
Example
Assume a builder pays an employee $50/hour and marks up labor by 50%, charging clients $75/hour.
However, if the employee’s fully burdened cost is actually $80/hour, the company is losing $5 for every labor hour worked. That loss often gets buried in overhead and quietly erodes profitability over time.
The Bottom Line
Understanding your labor burden is essential to:
Pricing jobs accurately
Protecting margins
Avoiding hidden losses in overhead
Ensuring long-term profitability and sustainability
If you don’t know your true labor cost, it’s nearly impossible to know whether your jobs are actually making money.