Labor Burden for Contractors: What an Hour Really Costs

What the burdened rate is

The burdened rate is what one productive hour of a W-2 employee costs the company, after everything the company pays on top of the wage is spread across the hours that actually land on jobs. It has two halves. The top half is the annual cost of the employee: wages, the employer's payroll taxes, workers' compensation, benefits and paid time off. The bottom half is the number of hours that person will spend on billable work in a year. Divide the first by the second and the answer is the labor cost an estimate should carry.

This page builds the rate for three trades, then moves the carpenter and the roofer into a second state with higher workers' comp rates. The wages, comp rates, health premium and state unemployment figures are invented and round, and are not any state's filed rates. The federal tax figures are the real 2026 figures.

Subcontractors paid on a 1099 carry none of this. Their price already includes their own burden, which is one reason a sub's hourly number and an employee's wage cannot be compared directly.

The pieces of burden

Employer Social Security and Medicare are 7.65 percent of wages

The employer pays 6.2 percent for Social Security and 1.45 percent for Medicare, matching what is withheld from the employee. For 2026 the Social Security portion stops once an employee's wages pass $184,500, so it only changes the arithmetic for a high-paid owner or manager. Medicare has no cap.

Federal unemployment tax is small and fixed per head

FUTA is 6.0 percent of the first $7,000 of each employee's wages, and employers who pay their state unemployment tax on time generally get a 5.4 percent credit. The net is 0.6 percent, or $42 per employee per year. Employers in a state that has borrowed from the federal unemployment fund and not repaid it lose part of that credit and pay more. The IRS publishes the list of credit reduction states each year.

State unemployment tax depends on the state and on the company

Each state sets its own taxable wage base and assigns each employer a rate, with new employers usually given a standard starting rate. A company with laid-off workers drawing benefits generally sees its rate rise. The example below uses an invented $300 per employee per year.

Workers' compensation is the line that moves the most

In most states comp is priced per $100 of payroll by class code, and the class code follows the work, not the job title. Under the NCCI system used in many states, code 5645 covers residential carpentry on dwellings up to three stories, code 5403 covers carpentry on larger or commercial buildings, and code 5551 covers roofing. A roofer and a carpenter on the same payroll can carry rates several times apart, and the experience modification factor then raises or lowers the whole premium based on the company's own claims. Payroll coded to the wrong class is generally corrected at the annual premium audit.

Washington prices comp by the hour instead

The Department of Labor and Industries charges premiums per hour worked in each risk class, built from base rates for several funds and adjusted by the employer's experience factor. In that state the comp cost per hour does not rise with the wage, so a percentage-of-payroll calculation gives the wrong answer for a higher-paid carpenter.

Benefits and retirement are whatever the company actually pays

The example uses a $500 monthly employer health contribution and a 3 percent retirement match. Use the real invoice and the real plan terms.

Paid time off is wages for hours that never reach a job

Two weeks of vacation and six paid holidays is 128 hours a year. The employee is paid for 2,080 hours but works 1,952. PTO is not a separate cost added on top; it is the reason the bottom half of the calculation is smaller than the top.

A carpenter, worked through

Take a residential carpenter at $30 an hour in the lower-rate state, where the invented comp rate for the carpentry class is $8 per $100 of payroll.

Annual wages are $30 times 2,080 paid hours, or $62,400. Employer Social Security and Medicare at 7.65 percent is $4,773.60. FUTA is $42 and state unemployment is $300. Workers' comp at $8 per $100 is $4,992. Health is $6,000 and the 3 percent match is $1,872. The year costs $80,379.60.

Divide by 1,952 productive hours and the burdened rate is $41.18 an hour. A carpenter who costs $30 on the pay stub costs about 37 percent more on the job.

Three trades, two states

The same method, with the same benefits, PTO and unemployment figures, gives these results.

Carpenter, $30 an hour, lower-rate state

Comp at $8 per $100 is $4,992. Annual cost is $80,379.60. Burdened rate is $41.18.

Carpenter, $30 an hour, higher-rate state

Comp at $16 per $100 is $9,984. Annual cost is $85,371.60. Burdened rate is $43.74.

Roofer, $28 an hour, lower-rate state

Wages are $58,240 and payroll taxes are $4,455.36. Comp at $20 per $100 is $11,648. Annual cost is $82,432.56. Burdened rate is $42.23.

Roofer, $28 an hour, higher-rate state

Comp at $40 per $100 is $23,296. Annual cost is $94,080.56. Burdened rate is $48.20, about 72 percent above the wage.

Painter, $25 an hour, lower-rate state

Wages are $52,000. Comp at $7 per $100 is $3,640. Annual cost is $67,520. Burdened rate is $34.59.

Two things come out of these rows. The roofer is paid $2 an hour less than the carpenter and costs more per hour in both states, entirely because of the class code. And moving the same roofer across a state line adds about $6 to every hour, which on a 400-hour reroof is roughly $2,400 of cost that a bid built in the first state would not carry.

The hours are the weak point

The 1,952 hours above assume every hour that is not PTO lands on a job. Real crews lose time to shop work, drive time between jobs, rain days and warranty callbacks, all of it paid. If the carpenter only puts 1,700 hours a year onto jobs, the same $80,379.60 spread over fewer hours is $47.28 an hour.

The number to use comes from the company's own timesheets. Total the hours coded to jobs for the last full year, divide by the number of field employees, and use that as the bottom half. Firms that have never coded time to jobs usually find the figure lower than they expected.

Putting the rate into estimates

The burdened rate is cost, not price. An estimate should multiply estimated hours by the burdened rate to get labor cost, then add overhead and profit on top. Pricing labor as the bare wage plus a markup leaves the burden to be paid out of the markup, and on a roofing crew that can consume most of it.

The truck, the office, the phones and insurance other than comp are overhead and stay out of the burdened rate. Kept separate, the rate can be checked against payroll records and the overhead markup against the profit and loss.

Putting the rate into QuickBooks

Give each trade its own labor item

In QuickBooks Online a service item in products and services can carry both a sales price and a cost. Set up an item per trade, with the burdened rate as the cost and the billing rate as the price, so estimates and change orders show labor margin line by line.

Carry a cost rate on each worker for job costing

QuickBooks Online can hold a labor cost rate for each worker so that time entered against a project shows up as project cost. Where that setting sits depends on the plan and on whether payroll runs inside QuickBooks. If payroll runs through QuickBooks, the actual wages and taxes post on their own, and the cost rate matters mainly for the parts payroll does not reach, such as comp and health.

Split the burden accounts in the chart of accounts

Employer payroll taxes, comp and benefits for field employees should post to cost of goods sold accounts for direct labor burden, kept apart from the same costs for office staff in overhead. Without that split the profit and loss shows field labor at the bare wage and hides a quarter or more of it in overhead. In the examples above, burden is 27 percent of the carpenter's burdened rate and 42 percent of the roofer's in the higher-rate state.