How to Use the Labor Burden Calculator

Step 1: Enter the Employee’s Hourly Wage

This is their base pay rate, not including any extra costs.

Step 2: Input Payroll Tax Rates

• FICA (Social Security + Medicare) (%): Enter the combined percentage for these taxes.
• FUTA (Federal Unemployment Tax) (%): Input the FUTA percentage.
• SUTA (State Unemployment Tax) (%): Specify the percentage for state unemployment tax (varies by state).

Step 3: Add Monthly Employee Benefits

• Health Insurance ($/month): Enter the monthly cost of health insurance.
• Retirement Contributions ($/month): Input the monthly cost for retirement contributions.

Step 4: Include Insurance Premiums

• General Liability Insurance Rate ($/1000): Provide the liability insurance cost per $1000 of payroll.
• Workers’ Compensation Rate ($/100): Specify the workers’ compensation cost per $100 of payroll.

Step 5: Review the Results

Once you hit “Calculate,” your total hourly labor burden and total hourly burden (beyond base wage) will display to the left, along with a full cost breakdown in the table below. A detailed table provides insights into each cost component:

• Cost Component: Itemizes taxes and benefits.
• Percentage / Rate: Shows the respective percentage or rate used.
• Calculated Cost: Displays the cost per hour for each component.

What is Labor Burden and Why Does it Matter?

Labor burden is the total cost your business incurs for retaining an employee, beyond their hourly pay. Sometimes called a burden rate or payroll burden, labor burden includes all mandatory and optional employer expenditures, including payroll taxes (FICA, FUTA, SUTA), insurances (workers’ compensation, general liability, etc.), and employee benefits (health, retirement, etc.). 

To comply with federal and state laws, employers must pay specific taxes and insurance for each employee. These include:

• FICA (Federal Insurance Contributions Act): Covering Social Security and Medicare taxes, employers must match an employee’s contribution of 7.65% of gross wages, for a combined total of 15.3%.
• FUTA (Federal Unemployment Tax Act): Employers must pay federal unemployment tax at a rate of 6% on the first $7,000 of each employee’s annual wages. However, employers who qualify for a 5.4% tax credit pay a reduced FUTA rate of 0.6% per employee up to $7,000. 
• SUTA (State Unemployment Tax Act): Also known as state unemployment insurance (SUI), this is a state-level tax employers must pay for each employee. The rates and wage thresholds vary by state and industry, though all employers must comply with their state’s requirements.
• Workers’ Compensation Insurance: This insurance covers employees injured on the job and is required for employers in all states except for Texas. 

Learn more about state-specific Labor Laws and employer requirements here.

How to Calculate Labor Burden

Calculating labor burden is your way to understand the full cost of having an employee. Remember: when you pay an employee it isn’t just their hourly rate you’re covering. To get the full picture of your expenses, let’s calculate labor burden, starting with a simplified formula:

Hourly Labor Burden Rate = (Annual Wage + Annual Taxes + Annual Benefits + Annual Insurance) ÷ 2080

2080 represents the standard number of work hours in a year (40 hours × 52 weeks).

To calculate annual labor burden, just remove the division step.

Let’s try it out in an easy example:

Example: Calculating Labor Burden

Let’s say you hire a new field technician named Jess at $20/hour. Here’s how her total burden might look:

• Hourly wage: $20
• Annual wage: $41,600 (2080 hrs)
• FICA (7.65%): $3,182.40
• FUTA (0.6%): $249.60
• SUTA (3%): $1,248
• Health insurance: $6,000/year
• Retirement match: $1,000/year
• Liability insurance: $166.40/year
• Workers’ comp: $624/year

Total labor burden: $41,600 + $12,470.40 = $54,070.40/year

Hourly labor burden rate: $54,070.40 ÷ 2080 = $26/hour

So while Jess earns $20/hour, she actually costs the company $26/hour.

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