Labor Burden

What is Labor Burden?

Labor burden refers to the total cost a business incurs to employ someone beyond their base wages or salary. These additional costs may include payroll taxes, workers’ compensation insurance, employer-paid benefits, paid time off, and job-specific expenses like safety training or personal protective equipment. While this concept applies across all industries, it plays a particularly important role in construction, where indirect costs tied to each worker can be substantial and often vary by project type, location, or trade.

In construction accounting, labor burden is used to understand the full financial impact of labor on a project and to ensure that estimates, bids, and budgets account for more than just hourly wages. It helps contractors track and recover all labor-related costs and avoid underpricing work due to hidden or overlooked expenses. Understanding labor burden allows for more accurate job costing, better financial planning, and healthier project margins.

Why Labor Burden Is Important in Construction

In construction, labor is one of the largest and most variable project expenses. While base wages are easy to quantify, they represent only part of the actual cost of employing a worker. Payroll taxes, insurance premiums, paid leave, training, and other indirect costs add significantly to labor-related spending—but are often less visible during estimating. Labor burden captures these costs and brings them into the open, allowing contractors to budget for them accurately.

Without accounting for labor burden, job costs are understated, bids may come in too low, and profit margins can erode over time. Accurate labor burden calculations support reliable estimates, help avoid underpricing, and provide a clearer view of project performance. In competitive markets where small differences in cost can determine whether a bid is won or lost, a well-understood labor burden can make the difference between a profitable project and a financial loss.

What Costs Are Included in Labor Burden?

Labor burden includes any cost directly tied to employing a specific worker—costs that arise when someone joins the payroll and disappear when they leave. While burdened costs vary by company, trade, job role, union agreements, and location, most labor burden calculations include several common categories:

• Payroll Taxes — The employer’s share of Social Security and Medicare taxes (FICA), federal unemployment (FUTA) taxes, and state unemployment (SUTA) taxes. These taxes are required by law and apply to nearly all employees.
• Workers’ Compensation Insurance — Premiums paid to insure employees for job-related injuries or illnesses. Rates vary significantly based on job classification codes, risk levels, and state regulations. Learn more and compare workers’ compensation policies in this guide.
• Health Benefits — Employer-paid health, dental, and vision insurance premiums. In union environments, these benefits may also include contributions to multiemployer health plans.
• Paid Time Off (PTO) — Costs associated with paid holidays, vacation time, sick leave, personal days, and jury duty leave. Even when employees are not working, businesses continue to incur payroll and benefit expenses.
• Retirement Contributions — Employer contributions to employee retirement plans, including 401(k) matching, profit-sharing, or pension fund payments. Contributions may be discretionary or contractually required.
• Life and Disability Insurance — Employer-paid premiums for life insurance, short-term disability insurance, and long-term disability insurance.
• Safety and Compliance Costs — Mandatory safety training, certifications, and personal protective equipment (PPE) issued to employees to meet jobsite and regulatory requirements.
• Role-Specific Equipment and Benefits — Costs associated with job-specific equipment and perks. Examples include company-provided cell phones, vehicles assigned to employees (and vehicle insurance for business use), per diem allowances, travel reimbursements, relocation assistance, educational assistance or tuition reimbursement, specialized training beyond basic requirements, employee-use tools and equipment, uniforms or work clothing, housing stipends, and employer-paid wellness benefits.

Contractors must account for each of these costs to accurately measure the true cost of employing workers.

Labor Burden vs. Overhead

Labor burden and overhead both represent costs that are not immediately visible in an employee’s base wages or a project’s direct materials. However, they serve different purposes in construction accounting and should be tracked separately. Labor burden includes costs tied directly to employing a worker—such as payroll taxes, insurance premiums, paid time off, and role-specific expenses like safety training or personal protective equipment. These costs fluctuate with staffing and are specific to individual employees.

Overhead, by contrast, covers the general costs of running the business that are not linked to any one employee or project. Office rent, utilities, general liability insurance, administrative salaries, and company-wide software expenses continue whether a contractor has five employees or fifty.

Accurately separating labor burden from overhead supports better job costing, more reliable bidding, and clearer financial reporting. Misclassifying these costs can lead to underpricing, margin erosion, and project tracking errors.

For a quick reference to easily distinguish between labor burden and overhead costs, download this Cost Classification Reference:

How to Calculate Labor Burden

Labor burden measures the true cost of employing a worker beyond their base wages or salary. For business owners and contractors, it answers a critical question: how much does each employee really cost the company?

There are several ways to express the costs of employing a worker depending on what a business wants to evaluate:

Labor Burden ($) is the total dollar amount of indirect employment costs. Useful when estimating project expenses, budgeting for crews, or reviewing the true financial impact of staffing decisions.

Burden Rate (%) is the percentage of indirect costs relative to base wages. Helpful for tracking trends over time, comparing labor efficiency across roles or projects, or spotting major shifts in labor-related expenses.

Fully Burdened Labor Rate ($) is the combined cost of base wages plus all burden costs, shown as an hourly or annual figure. Essential for setting accurate billing rates, calculating break-even costs, and managing project cash flow.

Each measure offers a different lens on labor costs. Contractors may focus on the fully burdened labor rate when pricing work, while businesses managing crews or departments may rely more on burden rates to monitor workforce efficiency and control indirect costs. Knowing how to calculate and apply all three gives companies stronger control over job costing, estimating, and financial planning.

Example Calculations

To see how these equations in action, consider a simple example for a construction superintendent. Here are the details:

Base Salary: $80,000 per year

Indirect Employment Costs:

• Payroll taxes (Social Security, Medicare, unemployment): $6,120
• Workers’ compensation insurance: $3,200
• Employer-paid health, dental, and vision insurance: $8,500
• Paid time off (holidays, vacation, sick leave): $4,000
• Retirement contributions (401k match): $2,400
• Safety training and equipment: $800

Calculations

Labor Burden ($) = $6,120 + $3,200 + $8,500 + $4,000 + $2,400 + $800 = $25,020 per year

Burden Rate (%) = $25,020 ÷ $80,000 = 31.3%

Fully Burdened Labor Rate = $80,000 + $25,020 = $105,020 per year ≈ $50.49 per hour

Labor Burden Calculator

Average Labor Burden Rates

While the cost to employ people varies widely by industry, company size, and workforce structure, the U.S. Bureau of Labor Statistics publishes detailed compensation data that offers a useful benchmark. By annualizing the figures from the BLS December 2024 Employer Costs for Employee Compensation (ECEC) report, business owners can better understand labor burden across the private sector and within the construction industry.

Annualized data from the BLS report shows that across all private industry workers, an employer will pay $92,914 per year in total compensation for a full-time employee. Of that, $65,458 is direct wages or salary, and $27,456—or roughly 42% of base pay—is spent on benefits and legally required costs. The costs of employment (i.e. labor burden) break down as follows:

• Paid leave – $7,030 (10.7% of wages)
• Supplemental pay – $3,827 (5.9%)
• Insurance benefits – $6,698 (10.2%) *
• Retirement and savings – $3,162 (4.8%)
• Legally required benefits – $6,739 (10.3%)

In the construction industry, the numbers are even higher. Based on the BLS data, a full-time construction employee costs $99,528 in total compensation, with $69,306 in wages and $30,222 in labor burden costs. The labor burden amounts to approximately 44% of base pay. Here’s how that burden breaks down:

• Paid leave – $4,826 (7.4% of wages)
• Supplemental pay – $5,221 (8.0%)
• Insurance benefits – $7,280 (11.1%) *
• Retirement and savings – $4,389 (6.7%)
• Legally required benefits – $8,507 (13.0%)

These benchmarks highlight just how expensive labor burden can be—often exceeding 40% of base wages. While every construction business will have its own structure, benefits, and insurance costs, comparing actual burden rates to national averages can help contractors refine their budgets, bids, and job costing strategies to remain competitive.

* According to the 2024 KFF Employer Health Benefits Survey, the average employer contribution to premiums was approximately $7,584 for single coverage and $19,276 for family coverage.

Tracking Labor Costs

Tracking labor burden manually—especially across multiple projects, roles, and time periods—can be complex and error-prone. Most contractors rely on construction accounting software or job costing tools to manage burden rates, apply them consistently, and monitor changes over time. These platforms allow businesses to compute burden rates at the employee, crew, or job level—and apply them to the appropriate cost codes to ensure accurate job costing and financial reporting.

When paired with estimating software or takeoff tools, accurate labor burden rates can be applied during the bidding phase to ensure true labor costs are reflected in proposals. Likewise, project management software with time tracking and job costing capabilities can help contractors see how the costs of employment affects ongoing budgets and project profitability.

By combining the right software with accurate inputs, contractors can track labor burden more effectively, reduce risk of underbidding, and improve confidence in their cost estimates.