A Fully Burdened Labor Rate in Construction Typically Runs 1.25x to 1.5x the Base Wage
If you are paying a worker $25 an hour, you are not spending $25 an hour. You are spending somewhere between $31 and $38 — sometimes more. That gap is your labor burden, and it is the single most underestimated cost in the construction industry.
I learned this the hard way when I was running roofing crews. I would bid a job based on what I was paying my guys per square, then wonder why the profit was thinner than my estimate said it should be. The answer was always the same: I was not accounting for the real cost of having that person on my payroll.
A fully burdened labor rate is the total cost to employ someone. Not just their base pay. Everything. Payroll taxes, insurance, workers' comp, benefits — all of it rolled into a single hourly number. Once you know that number, you can actually bid jobs that make money.
What Goes Into a Fully Burdened Rate
Here is every cost component you need to account for. I will use real percentages so you can apply these to your own numbers.
FICA (Social Security + Medicare): 7.65%
This one is non-negotiable. Every employer pays 6.2% for Social Security and 1.45% for Medicare on every dollar of wages. Your employee pays their half too, but that is their problem. Your half is 7.65%, and it hits on every single paycheck.
On a $25/hr worker putting in 2,080 hours a year, that is $3,978 annually just for FICA.
Federal Unemployment Tax (FUTA): 0.6%
FUTA is 6.0% on the first $7,000 of each employee's wages, but you get a 5.4% credit if you pay your state unemployment taxes on time. So the effective rate is 0.6%. That works out to $42 per employee per year. It is small, but it adds up across a crew.
State Unemployment Tax (SUTA): 1% to 5%
This varies by state and by your experience rating. If you have had a lot of employees file unemployment claims, your rate goes up. New businesses often start with a higher rate too. For construction, expect to pay somewhere in the 2% to 4% range in most states. This applies to the first $7,000 to $56,000 of wages depending on your state.
For our $25/hr roofer in a state with a 3% SUTA rate on the first $40,000, that is $1,200 per year.
Workers' Compensation Insurance: 5% to 30%+
This is the big one for construction. Workers' comp rates vary wildly based on the trade and your claims history. Office workers might pay $0.20 per $100 of payroll. Roofers? You are looking at $15 to $25 per $100 of payroll in many states. That is 15% to 25% of every dollar you pay your crew.
On a $25/hr roofer earning $52,000 a year, workers' comp at $20 per $100 of payroll costs you $10,400 per year. That alone adds $5.00 per hour to your true labor cost.
If you are in a high-risk trade like roofing, steel erection, or demolition, workers' comp is probably your single largest burden cost. Do not guess at this number. Get your actual rate from your insurance carrier.
General Liability Insurance
General liability is not always calculated per payroll dollar, but some policies are. Even if yours is a flat premium, you should allocate a portion to each worker. A roofing contractor paying $30,000 a year for GL insurance with a 10-person crew is spending roughly $3,000 per employee, or about $1.44 per hour.
Health Insurance: $400 to $700/month per Employee
If you offer health insurance — and you may have to under the ACA if you have 50 or more full-time equivalent employees — plan on $400 to $700 per month for individual coverage. Family plans run much higher.
At $550 per month, that is $6,600 per year, or $3.17 per hour added to your labor cost. Not every contractor offers health insurance, but if you do, it is a major burden component.
Paid Time Off and Holidays
If you give your crew paid holidays, sick days, or vacation time, those are burden costs. You are paying someone not to produce. Six paid holidays and five vacation days means you are paying for 88 hours of non-productive time. At $25/hr, that is $2,200 per year — about $1.06 per hour worked.
Tools, Equipment, and Vehicles
This one gets overlooked constantly. If you provide tools, safety equipment, company vehicles, or fuel cards, those are part of your cost to have that worker in the field. A work truck with insurance, fuel, and maintenance can easily run $800 to $1,200 per month. Safety harnesses, nail guns, air compressors — it all adds up.
I will estimate a conservative $150 per month in tools and small equipment per worker for our example. That is $1,800 per year, or about $0.87 per hour.
Worked Example: A Roofer Earning $25/hr
Let me put real numbers to this. Say you have a roofer whose piece rate pay averages out to about $25 per hour over the course of a year. Here is what that worker actually costs you:
| Cost Component | Annual Cost | Per Hour |
|---|---|---|
| Base wages (2,080 hrs) | $52,000 | $25.00 |
| FICA (7.65%) | $3,978 | $1.91 |
| FUTA (0.6% on $7,000) | $42 | $0.02 |
| SUTA (3% on $40,000) | $1,200 | $0.58 |
| Workers' comp ($20/$100) | $10,400 | $5.00 |
| General liability (allocated) | $3,000 | $1.44 |
| Health insurance | $6,600 | $3.17 |
| PTO / holidays (11 days) | $2,200 | $1.06 |
| Tools / equipment | $1,800 | $0.87 |
| Total burdened cost | $81,220 | $39.05 |
That $25/hr worker actually costs you $39.05 per hour. That is a burden multiplier of about 1.56x.
If you do not offer health insurance or PTO, your multiplier drops closer to 1.35x. If you are in a low-risk trade with cheap workers' comp, it could be as low as 1.25x. But for most construction trades, you are somewhere in the 1.3x to 1.5x range at minimum.
Scaling It Up: A 10-Person Crew
Now multiply that across a crew. Say you have 10 workers with an average base rate of $27 per hour:
| Base Cost | Burdened Cost (1.45x) | |
|---|---|---|
| Per worker per hour | $27.00 | $39.15 |
| Per worker per year | $56,160 | $81,432 |
| Full crew per year | $561,600 | $814,320 |
The difference between what you are paying in wages and what you are actually spending is $252,720 per year. That is a quarter of a million dollars that needs to show up somewhere in your bids. If it does not, you are working for free — or worse, you are losing money.
Why This Matters for Bidding
Here is where this gets real. If you are estimating jobs based on base pay rates, you are underbidding every single project by 25% to 50%. That is not a rounding error. That is the difference between a profitable year and wondering why you cannot make payroll in December.
I have seen contractors bid roofing jobs at $65 per square for labor because that is what they pay their crew per square. But the actual cost of that labor — after burden — is closer to $85 to $95 per square. They are literally losing money on every job and trying to make it up on volume. It does not work.
Your bids need to reflect your fully burdened rate, not your base rate. Every estimate, every proposal, every quick napkin calculation should start with the real number.
This is exactly why job costing matters so much. You cannot fix what you do not measure. If your job costing system only tracks base wages, it is lying to you about your actual profitability.
Piece Rate Makes It Harder to Calculate
If you pay hourly, the burden calculation is straightforward. The base rate stays the same every week, so the burden stays the same.
Piece rate is different. Your crew's effective hourly rate changes every single week based on how much work they complete. A roofer might average $28/hr one week and $22/hr the next, depending on the jobs, the weather, and the crew size.
That means your labor burden — especially the percentage-based components like FICA and workers' comp — fluctuates right along with it. You cannot just set a burden rate in January and forget about it. You need to recalculate as production changes.
This is one of the reasons I built Piece Work Pro. When you are running piece rate payroll, you need software that tracks what each worker actually earned and calculates the true cost in real time — not a spreadsheet you update once a quarter.
The other problem with piece rate and burden is minimum wage compliance. In most states, you have to ensure every piece rate worker earns at least minimum wage for every hour worked. If they do not, you have to make up the difference, and that make-up pay has burden costs on top of it too.
Common Mistakes Contractors Make With Labor Burden
Using last year's workers' comp rate. Your rate changes based on claims history and payroll audits. Always use your current rate.
Forgetting about overtime burden. When a worker earns overtime, your FICA and workers' comp costs go up proportionally. Time-and-a-half means burden-and-a-half on those percentage-based costs.
Ignoring non-productive time. Travel between job sites, safety meetings, rain delays — if you are paying for it, it is part of your cost. Factor it in.
Not updating burden rates when you add benefits. If you start offering health insurance mid-year, your burden rate just jumped. Update your estimates immediately.
Treating burden as overhead instead of direct cost. Labor burden is a direct job cost. It belongs in your estimate line items, not buried in your general overhead percentage. If you lump it into overhead, you will underallocate it on labor-heavy jobs and overallocate it on material-heavy ones.
Frequently Asked Questions
What is a fully burdened labor rate?
A fully burdened labor rate is the total cost to employ a worker, including base wages plus all employer-paid taxes, insurance, benefits, and related expenses. It represents the real dollar amount you spend for every hour a person is on your payroll.
What is a typical labor burden percentage in construction?
For most construction trades, labor burden adds 25% to 50% on top of base wages. High-risk trades like roofing and steel work tend to be at the higher end due to workers' compensation costs. Low-risk trades and those without benefits packages will be at the lower end.
How do I calculate my labor burden rate?
Add up all employer-paid costs — FICA, FUTA, SUTA, workers' comp, general liability, health insurance, PTO, and any other employee-related expenses. Divide the total by the number of productive hours worked. Add that per-hour burden to the base wage to get your fully burdened rate.
Does workers' comp really cost that much for roofers?
Yes. Roofing is one of the highest-rated trades for workers' compensation insurance. Rates of $15 to $25 per $100 of payroll are common, which translates to 15% to 25% of every wage dollar. Your specific rate depends on your state, your claims history, and your insurance carrier.
Should I include labor burden in my job estimates?
Absolutely. If you estimate labor costs using base wages only, you are underbidding every job by 25% to 50%. Your fully burdened rate should be the starting point for every labor line item in every estimate you produce.
Know Your Real Numbers
Your labor burden is not a detail you can afford to ignore. It is the difference between profitable jobs and jobs that slowly drain your bank account.
The math is not complicated once you know your numbers. Get your actual workers' comp rate. Add up your payroll taxes. Account for insurance and benefits. Then use that burdened rate — not the base rate — for every bid.
Try our free Labor Burden Calculator to see your crew's true cost — no signup required.