Free Labor Burden Calculator: Your Essential Tool for Accurate Cost Estimation
Why Use a Labor Burden Calculator?
Whether employed in construction, the service industry, or any other sector, accurately calculating labor burden is the key to profitability and smart financial decision-making.
Manually calculating labor burden can be a tedious and time consuming task. Every employee on your team comes with additional costs aside from hourly wages. These costs are often hidden and easily overlooked, which is why using a labor burden calculator becomes a crucial part of your financial decision-making.
Our free labor burden calculator will help you estimate the total hourly cost of employing a worker, including the indirect labor costs associated with their employment, saving you valuable time.
Follow the steps below to utilize our free labor burden calculator.
Disclaimer: This labor burden calculator provides estimates based on the information you enter. Results are intended to be used as a guide and may not account for all variables. For accurate financial advice, please consult with a professional advisor.
How to Use the Labor Burden Calculator?
Step 1: Enter the Hourly Labor Rate
- Input the employee’s hourly wage into the ‘Starting Wage’ field. This represents your direct labor cost.
Step 2: Enter Indirect Labor Costs
- Enter the General Liability Insurance Rate, specified as a percentage of the employee’s hourly wage.
- Input the worker’s compensation rate, typically given as a percentage of the employee’s hourly wage.
Optional Fields:
- Health Insurance (Annual Cost). Enter the total annual cost of health insurance premiums the employer pays the employee.
- Retirement Benefits (Annual Cost). Enter the total annual amount the employer contributes towards the employee’s retirement plan.
- Paid Leave (Total Days). Enter the total number of paid leave days the employee receives per year. The calculator will estimate the cost of paid leave based on the employee’s hourly wage.
- Other Benefits (Annual Cost). Enter the annual cost of other benefits, such as training, uniforms, or meals.
Step 3: Review the Results
- Total Hourly Cost. This is the employee’s hourly wage plus all indirect labor costs. It represents the fully loaded cost of the employee per hour.
- Total Hourly Burden. This is the additional cost per hour due to indirect labor costs, calculated as the difference between the total hourly cost and the starting wage.
- Labor Burden Rate: This percentage represents the proportion of the employee’s hourly wage that is attributed to indirect labor costs, calculated as the ratio of the total hourly burden to the starting wage.
Important Notes:
- This calculator is designed to configure rates associated with hourly employees. If attempting to calculate labor burden for salaried employees, you will need to convert the salaried employee’s annual salary to an hourly rate.
- The calculator assumes a standard work week of 40 hours and 2,080 work hours per year (52 weeks), which is used to calculate hourly costs for benefits and indirect labor.
- Regularly review and update your labor burden calculations, as your costs may change.
How Do You Calculate Labor Burden?
To calculate labor burden, first gather records documenting indirect labor costs and employee wages.
The labor burden cost is the true cost of employing someone beyond their basic wages or salary. This includes:
- Taxes. Payroll taxes, federal unemployment taxes, etc.
- Benefits. Health insurance, retirement contributions, paid time off
- Insurance. Workers' compensation, liability insurance
- Other costs. Training, uniforms, meals, etc.
For reference:
Indirect labor costs include expenses such as taxes, benefits, insurance, etc.
Direct labor costs are the wages or salaries paid to employees
Here is the basic formula to calculate labor burden:
Labor Burden Rate = (Total Indirect Labor Costs / Total Direct Labor Costs) x 100
Let’s look at an example of calculating labor burden.
Your total indirect labor costs for a month are $10,000
Your total direct labor costs are $40,000
Plug the figures into the labor burden formula: (10,000/40,000) x 100 = Labor Burden Rate 25%
This means that for every dollar you pay in wages, you're spending an additional 25 cents on associated labor costs. These costs can add up significantly, sometimes reaching 25% or more of an employee's base pay. Failing to account for them can lead to underbidding on projects, inaccurate job costing, and reduced profit margins.
Check out our comprehensive article to learn more about calculating labor costs.
The Impact of Overtime and Meal Break Violations on Labor Costs
Overtime pay and meal break violations can significantly increase both direct and indirect labor costs.
However, the labor burden rate may stay the same if indirect costs are proportional to direct labor costs. But, the labor burden rate can increase if there are fixed costs or additional compliance expenses.
Let’s illustrate potential impacts to labor costs through a few case scenarios.
Scenario 1: No Overtime or Violations
An employee’s regular hourly wage is $20/hr without overtime or meal break violations. For a standard 40-hour workweek, this amounts to $800.
When accounting for indirect labor costs (such as taxes and benefits), the total hourly cost comes to $23.33, with a labor burden rate of 16.65%.
Scenario 2: Overtime and Meal Break Violations
Now, let’s consider a scenario where the employee above works 10 hours of overtime at $30/hr and misses two meal breaks, incurring a premium of $20 each. This increases their total wages to $1,140.
The additional wages also raise their FICA and FUTA taxes, pushing the total indirect labor costs up to $189.81. Consequently, the total hourly cost becomes $33.24, with the labor burden rate remaining at 16.65%.
As we can see from the scenarios above, overtime and meal break violations can significantly impact labor costs without impacting the actual labor burden.
The table below details a breakdown of labor costs for the two scenarios listed above.
Accurately tracking work hours, overtime, and breaks is an essential part of effective labor cost management. Tools like Timeero can help keep these costs under control.
PRO TIP : Overtime and meal penalties can be complex and vary depending on state regulations and other specific circumstances. If you’re running a business in the Golden State, premiums and penalties can greatly affect your labor costs.
To learn more about governing laws in California, check out additional resources, such as California Meal and Rest Break Laws for Employers and our California Overtime Calculator.
Streamlining Direct Labor Cost Tracking with Timeero
Timeero is a robust GPS time and mileage tracking tool that enables precise labor burden calculations and helps you reduce labor costs.
- Precise Time Tracking. Timeero uses GPS technology to track employee work hours accurately, including start and end times, breaks, and overtime. This ensures you’re paying for actual time worked, not just estimates.
- Mileage Tracking. For businesses with mobile workforces, Timeero automatically tracks mileage, simplifying mileage reimbursements and ensuring accurate accounting of travel-related costs.
- Notifications and Alerts. Send reminders and alerts to ensure all hours are accounted for.
- Detailed Reports. Generate comprehensive reports on employee hours, mileage, and costs, giving you valuable insights into labor expenses and productivity.
Tracking your labor burden over time helps you identify trends and areas for potential cost savings. By regularly reviewing your calculations, you can adjust your pricing and bidding strategies to maintain profitability.
Timeero’s free labor burden calculator and additional app features can help you understand your true labor expenses and make more informed business decisions.
Timeero also presents additional benefits to your business, such as:
- Improving payroll accuracy. Ensure employees are paid for the exact hours worked.
- Reducing administrative overhead. Automate time and mileage tracking, freeing up staff for more valuable tasks.
- Identifying cost-saving opportunities. Analyze labor data to optimize schedules and reduce unnecessary expenses.
- Enhancing compliance. Stay compliant with labor laws regarding overtime and break requirements.
To learn more about what Timeero can do for your business, read our comprehensive Timeero review.
FAQ
Is Labor Burden Part of Overhead Costs?
Labor burden and overhead are both indirect costs that businesses incur. Overhead costs refer to expenses not directly tied to labor, such as rent, utilities, and marketing. Labor burden specifically relates to the costs associated with employing your workforce.
How Can I Use a Labor Burden Calculator to Improve Job Costing Accuracy?
Incorporate your labor burden rate into your project cost estimation to account for all expenses. Simply multiply your estimated direct labor costs by the labor burden rate to determine your total labor costs for the project.
