Labor Cost Calculator
Calculate your fully burdened labor cost per hour worked — wages plus payroll taxes, benefits, workers' comp, and paid time off, using 2026 federal rates.
How labor cost is calculated
Start with gross annual wages (hourly wage × hours per week × 52). Add employer payroll taxes: 6.2% Social Security on wages up to $184,500 (2026 wage base), 1.45% Medicare on all wages, 0.6% FUTA on the first $7,000, and your state unemployment rate on your state's wage base. Add benefits and workers' compensation premiums.
Then comes the step most spreadsheets miss: divide by hours worked, not hours paid. An employee with 18 days of PTO works about 1,936 hours, not 2,080. That difference alone adds roughly 7% to the true hourly cost.
The result — the fully burdened hourly rate — is the number that belongs in job costing, pricing models, and realization analysis. Benchmark: per the BLS ECEC release (March 2026), total compensation in private industry averages $46.61 per hour worked — $32.60 in wages plus $14.01 in benefits.
Frequently asked questions
What is fully burdened labor cost?
Fully burdened labor cost is the total cost of an hour of work, not just the wage. It includes employer payroll taxes (Social Security, Medicare, FUTA, SUTA), benefits, workers' compensation, and the effect of paid time off — hours you pay for but don't receive work during. A $25/hour employee typically costs $33–$38 per hour actually worked.
What is a typical labor burden rate?
Labor burden commonly runs 25%–40% of gross wages for employees with standard benefits. Per BLS data (March 2026), benefits average 30.1% of total compensation in private industry. Industries with high workers' comp rates (construction, manufacturing) can exceed 50%.
Why divide by hours worked instead of hours paid?
Because paid time off means you pay for 2,080 hours but might receive 1,936 hours of actual work. Pricing and job costing should be based on the hours that produce output, otherwise you underprice every billable hour.
How do I use burdened labor cost in pricing?
Your billing rate must cover burdened labor cost plus allocated overhead plus target margin. If burdened cost is $34/hour and overhead allocation adds $12/hour, a 30% margin requires billing at roughly $66/hour.