How to calculate labor burden for your crew
Labor burden is everything you pay to employ a tech on top of the wage: employer payroll taxes, workers' comp, benefits and paid time off. Add those up for the year, divide by the wages, and you have your burden rate. In the example below it comes to about 33%, so a $28 tech costs you about $37 for every hour on the clock.
That's where most labor burden guides stop. For a service crew it's only half the answer, because you don't get paid for every hour on the clock. The number your prices have to cover is the cost of each hour you can bill.
What goes into labor burden?
Count every cost that exists only because the person is on your payroll:
- Social Security: 6.2% of each tech's wages, up to $184,500 of wages in 2026.
- Medicare: 1.45% of wages, with no cap.
- Federal unemployment (FUTA): 6.0% on the first $7,000 of each employee's wages, less a credit of up to 5.4% for state unemployment tax. In most states the full credit applies and FUTA works out to 0.6% of those wages; in a credit reduction state it costs more.
- State unemployment (SUTA): the rate and wage base your state assigns you each year.
- Workers' comp: priced per $100 of payroll by job class. Field trades pay a lot more than office staff.
- Benefits you pay: your share of health insurance, a retirement match.
- Paid time off: holidays, vacation and sick days, paid for hours nobody works.
Trucks, tools and phones are real costs, but keep them in job costs and overhead. Put them in labor burden too and you'll count them twice when you price.
The labor burden formula
Burden rate = total burden costs for the year ÷ wages for hours worked
Fully burdened cost per hour = (wages + burden costs) ÷ hours worked
Use a full year, not one pay period. Federal and state unemployment taxes stop once each person's wages pass a yearly cap, so January's payroll carries more tax per hour than October's.
A worked example
One tech at $28 an hour who works 2,000 hours and gets 80 hours of paid time off. Every rate below the federal taxes is an example; use your own state notice, workers' comp policy and benefits.
| Cost | Basis | Annual |
|---|---|---|
| Wages for hours worked | 2,000 × $28 | $56,000 |
| Paid time off | 80 × $28 | $2,240 |
| Social Security | 6.2% of $58,240 | $3,611 |
| Medicare | 1.45% of $58,240 | $844 |
| FUTA | 0.6% of the first $7,000, after the state credit | $42 |
| State unemployment | example | $300 |
| Workers' comp | example, $6 per $100 of payroll | $3,494 |
| Health insurance | example, $500 a month | $6,000 |
| Retirement match | example, 3% | $1,747 |
| Burden costs | everything but the wages | $18,278 |
Burden rate: $18,278 ÷ $56,000 = 32.6%. Fully burdened cost per hour worked: $74,278 ÷ 2,000 = $37.14.
Then divide by billable hours
Those 2,000 hours include driving between calls, loading the truck at the shop, callbacks you don't charge for and the Monday meeting. Say 1,400 of them end up on an invoice, which is 70%. Now the math is $74,278 ÷ 1,400, or $53.06 for every hour you bill. That's the floor your service pricing has to clear before overhead and profit.
Brandon Vaughn, who coaches home service owners, plans it from the other direction. He doesn't price the time a tech spends at the customer's house; he takes the whole day:
I look at an eight hour day and I divide up how much they need to get done and I divide it up over those eight hours and that is my man hour rate.
Drive time is where the gap usually hides. On one call, an owner said he had no idea what the commute from his shop was costing him, so Brandon did the math live for a 10-tech crew. Half an hour out and half an hour back is 10 man-hours a day. Over 22 working days at $15 an hour, that's $3,300 a month in payroll for sitting in traffic, plus about $11,000 of work the crew could have done instead at $50 an hour. The numbers made the case for a shop closer to the jobs.
What your revenue per hour lets you pay
Run it backward too. If you know what a tech brings in per hour worked, you know the most you can pay that person fully loaded. Brandon learned this on a window cleaning division in one of his own companies:
If you're doing $40 a man hour, the most you can afford to pay these people if they're doing window cleaning is $14 an hour fully loaded costs. That includes their taxes, that includes their workers' comp, that includes benefits, that includes all that stuff. 14 bucks an hour.
His quick check for a crew's pay plan, whatever mix of hourly and commission you use: the lead and helper together should cost less than 30% to 35% of what the job brings in.
Where labor burden goes in your books
Your techs' wages, their payroll taxes and their workers' comp belong in cost of goods sold, next to materials. Brandon said it this way in a workshop for owners:
The number one most expensive expense on your entire profit and loss sheet is payroll for your technicians.
If those costs sit in overhead, your gross margin looks better than it is and every job looks more profitable than it was. It's one of the first things we fix when we take over an HVAC company's books, and the chart of accounts for contractors post shows the setup. Office staff and their payroll taxes stay in overhead.
When to recalculate
Redo the math every January, when the Social Security wage base and your state unemployment rate change, and whenever you give raises, renew workers' comp or change benefits. Then compare it with what your jobs actually cost; tracking job profitability shows you where the hours went.
If you'd rather we run this for your crew, bring a recent payroll report to a free profit call. Payroll runs in the same house as your books (here's how that works), so the burden lands in the right place every month.
