Free Labor Cost Calculator: True Cost of an Employee
A $30 an hour carpenter costs a lot more than $30 an hour. Enter the wage, the payroll costs and how much of their time you can bill. You’ll see the burdened rate, the true cost of each billable hour, and a billing rate that keeps your margin.
True cost of an hour
How to calculate your labor burden
Yearly wages = Hourly wage × Paid hours
Burden = Wages × (Payroll tax % + Workers’ comp %) + Benefits
Burdened rate = (Wages + Burden) ÷ Paid hours
Billable hours = (Paid hours − Paid time off) × Billable %
Cost per billable hour = (Wages + Burden) ÷ Billable hours
Billing rate = Cost per billable hour ÷ (1 − Target margin %)
Examples
A lead carpenter at $32 an hour
2,080 paid hours = $66,560 wages. Payroll taxes 10% ($6,656) + workers’ comp 8% ($5,325) + $6,000 benefits = $84,541 a year, or $40.64 burdened. With 80 hours off and 85% billable, they bill 1,700 hours, so each billable hour costs $49.73. For a 35% margin, bill $76.51 an hour.
A helper at $20 an hour, no benefits
$41,600 wages + 18% taxes and comp = $49,088, or $23.60 burdened. At 75% billable after 40 hours off (1,530 hours), cost per billable hour is $32.08.
Labor Cost Calculator: common questions
What is labor burden?
Everything an employee costs on top of their wage: payroll taxes, workers’ comp, unemployment insurance, benefits and paid time off. It’s often 20% to 40% of the wage in construction.
What payroll tax percentage should I use?
Employer Social Security and Medicare are 7.65%. Add federal and state unemployment and any local taxes. Many contractors land around 9% to 12%. Your payroll provider or accountant can give you the exact number.
How do I find my workers’ comp rate?
It’s on your policy, usually as a dollar rate per $100 of payroll for each class code. A rate of $8 per $100 is 8%. Construction trades vary a lot, so check yours.
What is billable time?
Hours you can charge to a job. Drive time, shop time, material pickups, training and rain days are usually not billable, so cost per billable hour is higher than the wage suggests.
What billing rate should I charge?
Enough to cover the true cost per billable hour, your overhead and profit. The suggested rate divides cost by (1 − your target margin). If your markup also has to cover overhead, use a bigger margin.
Should I include paid holidays and vacation?
Yes. Put them in Paid time off. You pay for those hours but can’t bill them.
Does this work for subcontractors?
Subs usually carry their own taxes and comp, so their price is already their full cost to you. Use this for your own employees.
Is this tax advice?
No. It’s a planning tool. Your accountant or payroll provider can confirm the rates for your state and trade.
Talk to a person who knows remodeling.
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