The Construction Guide to Labor Burden
Wages are the number you see. They are not what a worker actually costs you. Add the taxes, comp, and benefits stacked on top, and you get your true labor cost for construction projects — the number your bids should be built on.
Build Better Bids
Uncover hidden employment costs so you don’t unknowingly losing money when bidding work.
Price Change Orders Better
Knowing your labor burden helps you price in the “knock-on” effects when you perform change orders.
See which jobs are really profitable
A small labor error doesn’t shave margin, it erases profit. Avoid corrupting your margins because of one wrong number.
Most contractors don’t lose money on bad jobs. They lose it on good jobs that were priced with the wrong labor number.
This guide breaks down what labor burden actually is, every cost that belongs in it, how to calculate it for your own business, and how to build it into your bids so profit stops disappearing between the estimate and the bank account. It’s written for California construction, contracting, development, and property management businesses, but the core math applies to any builder running crews.
Discover How Much You're Losing
Free Tool · For California Builders and Construction Trades
Labor Burden Calculator
Enter last month's figures and watch the gap appear.
Last month's payroll
What it actually costs you
- Wages
- Taxes
- Benefits
- Comp
- GL & OH
These are directional estimates to sharpen your bids, not a substitute for a CPA's review of your actual burden.
Your crew costs more than their wages.
That gap is decision-grade money. It changes what you bid, who you hire, and what you pay yourself. Our San Francisco CPA will rebuild your real numbers in a free review.
What is Labor Burden?
Labor burden is everything it costs to employ a worker beyond their wages: payroll taxes, workers’ comp, benefits, overtime, reimbursements, and more. Your payroll report shows gross wages. That feels like your labor cost, but it isn’t. As a percentage of wages, it’s the most useful labor number a contractor can know — it turns a wage rate you can see into the loaded cost you’re actually carrying on every job.
What's Inside a Construction Labor Burden
As a percentage of wages, it’s the most useful labor number a contractor can know — it turns a wage rate you can see into the loaded cost you’re actually carrying on every job.
|
Cost
|
Includes
|
Why it's missed
|
|---|---|---|
|
Employer payroll taxes
|
Employer Social Security/Medicare, FUTA/SUTA, CA ETT
|
Remitted automatically
|
|
Workers' comp
|
Premiums by trade class and payroll
|
Heaviest burden item in the trades
|
|
Health insurance
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Employer medical, dental, vision
|
Often booked as overhead
|
|
Retirement
|
Employer 401(k) match
|
Reviewed annually, not per job
|
|
Overtime premium
|
Cost above base rate
|
Closer to the norm than the exception
|
|
Sick pay & PTO
|
Paid, non-revenue hours
|
Disconnected from labor cost
|
|
General Liability & Field Overhead
|
General liability insurance, safety gear, small tools, fuel
|
Confused with business overhead (which belongs in markup)
|
|
Reimbursements
|
Mileage, tools, per diem, phone
|
Coded to expenses, not payroll
|
|
Payroll fees
|
Per-employee/per-run costs
|
Small per line, real in total
|
|
Bonuses
|
Spot and completion incentives
|
Too irregular to model
|
How to Calculate Labor Burden
As a quick gut-check, take last month’s gross wages and multiply by 1.37. Wages of $100,000 is roughly $137,000 in true cost. If that gap surprises you, you’re underpricing labor.
Labor Burden Formula
Labor burden rate = (Total payroll costs − Gross wages) ÷ Gross wages
Fully burdened cost = Gross wages × (1 + burden rate)
Fully burdened hourly rate = Hourly wage × (1 + burden rate)
Labor Burden Monthly Example
Let’s say in 2025, a California concrete contractor at ~$3.6M/year assumes payroll runs $95,000/month. Rebuilt in full:
|
Payroll cost
|
Percentage
|
Monthly
|
|---|---|---|
|
Gross wages
|
-
|
$95,000
|
|
Employer payroll taxes
|
9.5%
|
$9,025
|
|
Benefits & Mandated Leave
|
8.5%
|
$8,075
|
|
Workers' comp (blended field + supervisory)
|
12%
|
$11,400
|
|
General Liability and Field Overhead
|
7%
|
$6,650
|
|
Total Labor Burden
|
37%
|
$35,150
|
|
True Payroll Cost
|
|
$130,150
|
Burden is $35,150. The rate, if we divide $35,150 by $95,000, is about ≈ 37%.
This means in every $1 wages, the cost is actually ≈ $1.37. That’s $35,150 a month — about $421,800 a year — and it was the number used to bid jobs and judge margins.
Hourly example
$30/hour at a 37% burden = $41.10/hour — before markup, profit, or risk margin. Bid on $30 and you’re not pricing aggressively, you’re pricing wrong. You can’t bill the customer for payroll you forgot to include.
Why a San Francisco CPA for construction watches burden so closely
California is expensive, and contractors feel it everywhere at once:
- Workers’ comp in construction class codes — among the heaviest costs
- Overtime effectively built into the work
- Paid sick leave and related mandates
- Higher base wages — every burden point is more dollars
- Compliance and paperwork on top of direct cost
A national “average” burden is useless here. Your number is your number — calculate it.
Field labor vs. office payroll
Mixing payroll together destroys your ability to tell which jobs made money.
- Field labor → tracked to jobs (job costing)
- Office/admin payroll → tracked as overhead
- PMs, superintendents, estimators → allocated between the two
- Maintenance teams → tracked carefully
Allocate split-role time as accurately as you reasonably can — consistent beats perfect. One bucket of payroll makes tidy books that still can’t answer the only question that matters: did this job make money?
Putting burden to work in bids
Know your rate and guessing stops. You can build accurate bids, price change orders at true cost, compare estimated vs. actual labor, spot which jobs are genuinely profitable, and stop blaming cash flow for underpriced labor.
The sequence that protects margin: wage → fully burdened cost → markup → price. Skip the burden step and everything after it is built on a number that’s too low.
Common mistakes
- Bidding off the wage rate
Reason: The visible number is the wrong one - Calculating burden once
Reason: Comp rates, benefits, and overtime shift - One payroll bucket
Reason: Tidy but useless - Reviewing overtime monthly
Reason: By then the money’s gone - Borrowing a benchmark
Reason: “30–40%” is a range, not your number - Forgetting burden sits under markup
Reason: It’s the floor, not the price
Labor burden checklist
- Calculate your real burden. Pull last month’s payroll, add every cost outside wages, divide by wages. A real starting point beats a perfect one.
- Separate field from office labor. Field to job costing, admin to overhead, split-roles allocated consistently.
- Review overtime weekly. Ask why each time — scheduling, late materials, rework, customer delay. Unmanaged, it becomes the norm and eats margin.
☐
Pull payroll report
☐
List non-wage costs
☐
Calculate rate
☐
Convert wage rates to burdened rates
☐
Confirm field/office/split coding
☐
Rebuild bid template off burdened labor
☐
Set weekly OT review
☐
Recalculate burden quarterly
Revenue isn’t profit. Busy isn’t healthy. Wages aren’t labor cost. Knowing your true payroll cost changes how you bid, hire, schedule, and protect cash flow — and it’s where a lot of profit quietly disappears.
Before your next bid or hire, run the numbers. If you want a second set of eyes, a San Francisco CPA for construction can rebuild your true labor cost and pressure-test your pricing before money leaves the bank.
What is labor burden for contractors?
The payroll cost above wages — employer payroll taxes, workers’ comp, benefits, payroll fees, reimbursements, PTO, and sick pay.
Why does it matter in construction?
Labor is one of the biggest job costs. Bid on wages alone and you underprice the job, losing profit even when it looks successful.
Should field and office payroll be separated?
Yes. Field labor ties to job costs; office payroll is overhead. Mixing them hides whether jobs are profitable.
How often should I review payroll and overtime?
Payroll monthly at minimum; overtime weekly, because month-end is too late.
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