If you bid jobs off a worker's hourly wage, you are losing money on every project and don't know it. The wage is only part of what an employee actually costs you. The rest — taxes, insurance, benefits, and unbillable time — is called labor burden, and it routinely adds 30–60% on top of the base rate.
What labor burden includes
Labor burden is every cost of employment beyond the base wage: employer payroll taxes (Social Security, Medicare, FUTA, and state SUTA), workers' compensation premiums priced by class code, general liability insurance, health and retirement benefits, paid time off, training, and the cost of small tools and vehicle time. Each of these is a real dollar you pay whether or not the hour is billable to a customer.
The fully-burdened rate formula
Fully-burdened hourly rate = total annual cost of employment ÷ actual billable hours. The trap most contractors fall into is dividing by 2,080 hours (52 weeks × 40 hours). But nobody bills 2,080 hours — subtract PTO, holidays, training, drive time, and slow days, and a full-time worker may only bill 1,700–1,800 hours. Dividing the full cost by the smaller, real number is what produces an honest rate.
A worked example
Take a laborer paid $35/hour, or about $72,800/year. Add ~$5,600 in employer payroll taxes, ~$6,000 in workers' comp, ~$3,000 general liability, and ~$6,000 in benefits and PTO — roughly $93,400 all-in. Divide by 1,750 truly billable hours and the fully-burdened rate is about $53/hour, not $35. Bidding at $35 plus a markup that assumes $35 is the cost is how busy contractors stay broke.
Turn the rate into a bid
Once you know the burdened cost, add overhead recovery (rent, office, software, admin) and then a markup for profit. Remember markup and margin are not the same: to net 20% you need about a 25% markup on cost. Run your real numbers through the Fully-Burdened Labor Rate Calculator and it does the burden math for you.
Open the free Fully-Burdened Labor Rate Calculator →
Frequently asked questions
What is a typical labor burden percentage?
For trades, labor burden commonly runs 30–60% of base wage depending on state, workers' comp class code, and benefits. High-risk trades with expensive comp rates land at the top of that range.
Do I include labor burden for 1099 subcontractors?
True 1099 subs carry their own insurance and taxes, so you don't add payroll burden — but you should still verify their COI and confirm they're correctly classified, or you inherit the liability. Employees always require full burden.
Why not just divide annual cost by 2,080 hours?
Because you never bill 2,080 hours. PTO, holidays, training, and drive time are paid but not billable. Dividing by real billable hours (often 1,700–1,800) gives a rate that actually covers cost.