Free contractor calculator
Contractor Labor Burden Calculator
Find the cost of keeping an employee on payroll—not just the wage printed on the pay stub—then express it per productive hour.
Reviewed July 11, 2026 · Inputs are calculated locally in your browser
Build the employee’s annual cost
Start with the work schedule, then add employer costs from payroll and insurance records.
- True cost per productive hour
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- Productive hours/year
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- Total annual employer cost
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- Cost above base wage/hour
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- Burden on annual wages
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This is the employee cost to place into an estimate. It is not the customer billing rate; overhead and profit still need to be added.
Saved only in this browser. BuildMetric does not receive these numbers.
How the formula works
Start with annual paid hours: hours per week × paid weeks. Multiply those hours by the wage to find annual wages. Payroll taxes and workers’ compensation are applied to that annual wage base, including wages paid during leave.
Annual burden = payroll taxes + workers’ compensation + other annual employee costs.
True cost per productive hour = (annual wages + annual burden) ÷ productive hours. Productive hours are annual paid hours minus paid leave and other nonproductive paid time.
Worked example
A carpenter earns $28 per hour for 40 hours across 52 paid weeks. Annual wages are $58,240. After 120 hours of paid leave and 80 hours of training, meetings, and uncharged travel, 1,880 productive hours remain. Assume employer payroll taxes of 10%, workers’ compensation of 12%, and $7,200 in other annual employee costs.
Payroll taxes, workers’ compensation, and other employee costs total $20,012.80. Total annual employer cost is $78,252.80. Dividing that cost by 1,880 productive hours produces a true cost of $41.62 per productive hour. Company overhead and profit still need to be added before setting a customer rate.
Frequently asked questions
What is labor burden?
Labor burden is employer cost above base wages. It commonly includes employer payroll taxes, workers’ compensation insurance, paid leave, health benefits, retirement contributions, and other employee-specific costs.
Why use productive hours instead of 2,080 hours?
A full-time schedule may contain 2,080 paid hours, but holidays, vacation, sick leave, training, and other nonworking time reduce the hours producing job output. Spreading annual cost across realistic productive hours gives a more useful cost per working hour.
Is labor burden the same as overhead?
Not usually. Labor burden follows an employee or payroll dollar; overhead supports the company more broadly. Office rent, estimating time, general software, and advertising are typically overhead. Consistent classification matters more than any single convention, provided no cost is omitted or counted twice.
Should paid time off be included in both benefits and hours?
Enter paid leave as nonworking hours and do not also include its wage value in annual benefits. The calculator values those hours at the base wage. Double entry would overstate burden.
Sources and further reading
- IRS Publication 15 — federal employer tax responsibilities and wage guidance
- U.S. Department of Labor: Employer Costs for Employee Compensation — national compensation-cost categories and context
- U.S. Department of Labor: Workers’ compensation — overview and links to state programs
Limitations
- Payroll tax wage bases and rates vary by tax, employee earnings, jurisdiction, and year; a combined user-entered rate is a planning shortcut.
- Workers’ compensation premiums depend on classification code, state, experience modification, payroll audits, and policy terms.
- Overtime premiums, bonuses, per diem, union obligations, recruiting, tools, vehicles, and administrative payroll time are excluded unless included in your benefit figure.
- The calculation uses one representative employee; crews with different wages and benefit plans should be modeled separately or with a carefully weighted average.
Use this result as a planning estimate. Confirm tax, insurance, wage, and contractual decisions with qualified professionals and your current company records.