How Do You Calculate Labor Burden for a Crew?

By Wyatt Cooper · Published October 22, 2026 · 6 min read

Key takeaways

Labor burden is everything an employer pays for a worker beyond the wage: payroll taxes, workers' compensation, insurance rated on payroll and benefits.
Social Security is 6.2% and Medicare 1.45% for the employer; FUTA is 6.0% on the first $7,000 of wages, or 0.6% after the full state credit, per the IRS.
Divide the year's total cost by productive hours, not paid hours, because holidays and paid leave are paid but not billed to a job.
In the worked example, a $38.00 wage carries $25,928.56 of burden a year, 32.8% of wages, and costs $52.70 per productive hour.

To calculate labor burden, add up what you pay for a worker in a year beyond wages: Social Security and Medicare, federal and state unemployment, workers' compensation, any insurance rated on payroll, and benefits such as health insurance and retirement. Divide by annual wages for the burden percentage. Then divide wages plus burden by the hours the worker is productive on jobs, not the hours paid, to get the hourly rate to bid with.

What goes into labor burden

Some burden is set by law and the same for everyone; some depends on your state, your insurance and what you offer. The IRS sets the federal pieces: "The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee", "The current rate for Medicare is 1.45% for the employer", and for earnings in 2026 the Social Security wage base limit is $184,500 (IRS Topic 751). "The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year", and with the maximum 5.4% state credit "the FUTA tax rate after credit is 0.6%" (IRS Topic 759).

The parts of labor burden, and where each rate comes from
Item	Rate set by	Applies to
Social Security	Federal law: 6.2% employer share	Wages up to $184,500 in 2026
Medicare	Federal law: 1.45% employer share	All wages (no wage base)
FUTA	Federal law: 6.0%, 0.6% after the full state credit	First $7,000 per employee per year
State unemployment (SUTA)	Your state: your assigned rate and wage base	Wages up to the state's base
Workers' compensation	Your insurer and state: a rate per $100 of payroll by class code	Payroll in each class
Liability insurance rated on payroll	Your policy	Payroll, if your policy is rated that way
Health insurance, retirement, other benefits	Your company	Per employee, or a percent of wages

For a sense of scale, the Bureau of Labor Statistics put the construction industry's average wages and salaries at $36.13 an hour in June 2026, with legally required benefits (Social Security, Medicare, unemployment and workers' compensation) at $4.42 an hour (BLS, Employer Costs for Employee Compensation, table 4). That is an average across the industry; your own rates are the ones to bid with.

Steps to calculate it

Take one worker's base wage and the hours paid in a year, including holidays and paid leave.
Compute annual wages: wage × paid hours.
Add the employer's Social Security (6.2% up to the wage base) and Medicare (1.45%).
Add FUTA (0.6% of the first $7,000 if you get the full state credit; the IRS notes employers in a credit reduction state pay more) and your state unemployment rate on your state's wage base.
Add workers' compensation at your rate per $100 of payroll for the worker's class code, and any insurance your policy rates on payroll.
Add the benefits you pay: health insurance, retirement contributions and any others.
Burden percentage = total burden ÷ annual wages.
Hourly cost = (wages + burden) ÷ productive hours: paid hours minus holidays, vacation and other paid time off the job.

A worked example: one journeyman

The company and its state and insurance rates are fictional; the federal rates are the IRS's. A journeyman earns $38.00 an hour for 2,080 paid hours a year (40 × 52), including six paid holidays and five paid vacation days, which are 88 hours not worked on jobs. The fictional state charges 3.0% unemployment on the first $12,000 of wages; workers' comp is $7.50 per $100 of payroll for the trade's class; the liability policy is rated at $2.00 per $100 of payroll; health insurance costs the company $800 a month; and it matches 3% of wages into a retirement plan.

Annual labor burden for one fictional journeyman (to the cent)
Item	How it is figured	Amount
Wages	$38.00 × 2,080 hours	$79,040.00
Social Security	6.2% × $79,040 (under the $184,500 base)	$4,900.48
Medicare	1.45% × $79,040	$1,146.08
FUTA	0.6% × $7,000	$42.00
State unemployment (fictional)	3.0% × $12,000	$360.00
Workers' compensation (fictional rate)	$7.50 per $100 × $79,040	$5,928.00
Liability insurance (fictional rate)	$2.00 per $100 × $79,040	$1,580.80
Health insurance (fictional)	$800 × 12	$9,600.00
Retirement match (fictional)	3% × $79,040	$2,371.20
Total burden	Sum of the eight items above	$25,928.56
Total cost	$79,040.00 + $25,928.56	$104,968.56

Burdened rate: one journeyman

Burden as a percent of wages: $25,928.56 ÷ $79,040.00 = 32.8%
Cost per paid hour: $104,968.56 ÷ 2,080 = $50.47
Productive hours: 2,080 − 88 = 1,992
Cost per productive hour: $104,968.56 ÷ 1,992 = $52.70
Uplift on the $38.00 wage: $52.70 ÷ $38.00 = 1.387, or 38.7%

From annual cost to the rate you bid with

The burden adds up as $4,900.48 + $1,146.08 + $42.00 + $360.00 + $5,928.00 + $1,580.80 + $9,600.00 + $2,371.20 = $25,928.56. The legally required part alone (Social Security, Medicare, both unemployment taxes and workers' comp) is $12,376.56, or 15.7% of wages, more than the BLS industry average because the fictional comp rate is for a higher-risk class. Bidding this worker at $50.47 instead of $52.70 loses $2.23 on every hour billed, which is the paid time off.

Mistakes that underprice labor

Dividing by paid hours, so holidays and vacation are never billed to anyone.
Using one burden percentage for every trade when workers' comp rates differ by class code.
Applying Social Security above the wage base, or forgetting it applies right up to it.
Leaving out benefits because they are paid monthly, not per hour.
Not recomputing when the state assigns a new unemployment rate or the comp policy renews.

The burdened rate is the labor cost in your bid; overhead and profit go on top of it. How a sub turns that into a proposal is in how to bid a GC's job as a subcontractor and how to write a subcontractor proposal; the markup step is in markup vs margin. More for subs is in the subcontractor's guide.

The bottom line

Labor burden is the gap between a wage and what a worker really costs you. Add the federal taxes, your state's unemployment rate, your comp and insurance rates and your benefits, then divide by the hours that can be billed.

Recompute it when any rate changes, and keep one rate per trade class. The difference between paid and productive hours alone can be a few dollars on every hour you bid.

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Sources

Topic no. 751, Social Security and Medicare withholding rates — Internal Revenue Service. Read October 22, 2026.
Topic no. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return – filing and deposit requirements — Internal Revenue Service. Read October 22, 2026.
Employer Costs for Employee Compensation, Table 4 (June 2026) — U.S. Bureau of Labor Statistics. Read October 22, 2026.
Employer Costs for Employee Compensation, Technical Note (legally required benefits) — U.S. Bureau of Labor Statistics. Read October 22, 2026.

Questions

What is a typical labor burden percentage in construction?

It depends on your state, your workers' comp class and your benefits, so work out your own. For context, BLS put the construction industry's legally required benefits at $4.42 an hour on $36.13 of wages in June 2026, before health insurance and retirement.

Is overtime included in labor burden?

Overtime pay is wages, so Social Security, Medicare and most other payroll-based items apply to it. How your comp insurer treats the overtime premium depends on your state's rules; ask your carrier.

Why divide by productive hours instead of paid hours?

Holidays and paid leave are paid but not worked on any job. Spreading their cost over the hours you can bill is the only way a job pays for them.

Does the Social Security tax stop at a wage limit?

Yes. For 2026 the IRS states the Social Security wage base limit is $184,500; the employer's 6.2% is not owed on wages above it. Medicare has no wage limit.