The Make Up of a Labor Burden Rate
As a contractor, one of your largest expenditures is labor and the related costs to that labor. However, did you know you could be losing profits on jobs if you are not including the related costs of labor, also known as labor burden, in your estimates and your actual costs of the jobs? Labor burden is all the costs of employing a work force above and beyond compensation. This cost includes all costs an employer must incur to employ an employee. This article will provide you with the various items of costs that should be included in your labor burden calculation which then gets included into your bid and actual job costs.
The first thing that you will need to do in order to calculate your labor burden is to gather all of the costs related to your employees. These costs include the following items:
FICA and Medicare (employer portion), FUTA and SUTA taxes and any other employer related payroll taxes
Employer medical, dental, vision, long and short-term disability and life insurance, workers’ compensation and safety program costs (OSHA 10, OSHA 30, etc), General Liability insurance and Errors and Omissions insurance, indemnification policies.
Employee Fringe Benefits
Bonuses, holidays, vacations, and sick days
401(k) and profit sharing employer contributions (assume all employees will participate in the plan in order to not underestimate contributions which could lead to inaccurate information), stock option plans, employee stock purchase programs, and pension contributions.
Other Employee Benefits
Cell, telephone and/or internet costs, uniforms, company vehicle usage costs (depreciation, gas and oil, repairs, licenses and insurance), equipment usage, maintenance and depreciation for office workers, small tools and equipment or office supplies for office workers, snacks, meals, parties, entertainment, training fees, professional development training and seminars, drug testing, shirts/uniforms/hats, and professional licenses.
Once you have determined the components of your labor burden the next step is to determine the amount of burden per employee. You will need to determine the related costs per employee for all of the components above and then determine how much per hour cost that employee’s burden is. Once the per hour cost of burden is determined, then you can add that burden into all job bids that employee works on. The per hour burden amount will also need to be entered into your job costing system so that the burden is included in the true cost of the job, which will then match the job estimated costs that were determined during the bid phase.
Below is a simple calculation of a labor burden calculation utilizing some of the more common components of labor burden.