What is Burdened Labor?: In construction, the cost of employee labor extends beyond gross pay. It typically includes payroll taxes and insurance, benefits and overhead tied to those employees. This is often referred to as a labor burden. While labor burden rates vary based on location, contract type, employee type, and a number of other factors, the collection of this information is relatively straightforward. Let’s begin with payroll taxes:

Payroll Taxes: Even though calculating payroll taxes is complex, if you’re using a payroll processor and have access to your payroll report, determining the payroll tax rate is easy. Simply run your report for the past 12 months, divide total employer taxes by total gross pay and you’re set with taxes. Next, we’ll have to find your Workers’ Compensation rate, as this is included in the payroll taxes portion of your burdened labor rate. While there are a few ways to calculate this number, the easiest (and most accurate) way may be to request the rate from your insurer. Then, add both percentage rates together. In Massachusetts, the combined total is typically 20-25% of gross pay.

Benefit Rate: The benefit rate can also be determined through your payroll reports. While this information may exist in different places, if you’re using Quickbooks Online, begin with the Payroll Deductions/Contributions report. Basically, we’re looking to collect data on health insurance, retirement plans, sick leave, and all other benefits that employees receive other than gross pay. As the benefits offered by employers varies greatly, the rate used in this calculation will vary from builder to builder, and from employee to employee. Luckily, we’ve include three separate calculators, so you can run burdened labor rates for multiple employee classes at the same time.

Overhead Rate: This is probably the most misunderstood rate in this calculation, as it applies only to the overhead associated with your employees—not the company as a whole. This would include job training, recruitment costs, payroll processing, safety equipment, HR and/or administrative staff, mileage reimbursements, etc. While some of this data might prove more difficult to track down, it’s worth taking the time to do is as it’ll give you the most comprehensive understanding of the true cost of your employees.

Summary: In the past, builders ascribed a set labor burden rate across their company, from year to year. With increases in healthcare costs, fuel, employee retention, insurance, and more, that approach may no longer be feasible. To be competitive for the long term, having clarity on the real cost of your employees is an advantage. If you’d like to have this tool customized for your business, reach out to us at 413-597-8929.