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Labor burden

The hourly wage you pay for labor isn't your hourly labor cost. Your total "labor burden" also includes payroll taxes, insurance, and employer-paid benefits like sick, vacation, holiday, and union benefits.

The table below is an example of a more accurate assessment of true labor cost. Percentages in the second column are percentages of the hourly wage (the percentages for your locale may vary from the example here).

   Labor, Hourly Rate                   $20.00
   Workers Comp (5-54%)       13.20%      2.64
   Liability Insurance         3.50%      0.70
   Medicare Taxes              1.45%      0.29
   Social Security             6.20%      1.24
   Unemployment, State         3.70%      0.74
   Unemployment, Federal       0.80%      0.16
   Union Benefits             10.00%      2.00
   Medical Insurance          $50/mo.     0.30
   Total rate per hour                   $28.07

The workers compensation rate for each employee will vary depending on their workers compensation classification, which is based on the type of work the employee performs. If you create your own table like the one above, and the employee has two or three classifications, then you would average those rates and use the average workers compensation rate in the table.

Your liability insurance is based on the rate your insurance carrier has given you for payroll. Not all liability insurance is based on payroll; some of it may be based on your gross receipts.

If you offer sick, holiday, or vacation pay, then you would need to add those categories to the table above.

In the example above, the labor rate for someone making $20 per hour ends up costing $28.07 per hour when labor burden is included. This is why it is extremely important to include labor and labor burden in your job cost reports. If either gets left off, your job will look more profitable, which will be misleading to the estimator, owner, and project manager.

10/27/2016 11:42:01 AM
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