Labor Cost Calculator: Find What Your Crew Really Costs You

You pay a worker $25 an hour. So a full day of work, eight hours, costs you $200, right? That is what most contractors plug into a bid. And that is exactly why so many of them lose money on jobs they thought were winners.

Here is the hard truth. The wage is not your labor cost. It is only the start of it. On top of that $25, you are also paying payroll taxes, workers comp, and any benefits you offer. Add it all up and that $25 worker is really costing you closer to $32 an hour. Bid on the wage alone and you are giving away a chunk of every job before you even pick up a tool.

The good news is that this is easy to fix once you see the real number. You do not need an accountant. You just need to add your true labor cost on top of the wage, and then bid on that. The calculator below does the math for you. Plug in the wage, the crew, the hours, and your burden, and see what the job really costs you in labor.

Why the hourly wage is not your labor cost

When you hire someone at $25 an hour, that number is just their take-home rate. But you, the business owner, pay for a lot more than that.

Every hour they work, you also owe money to the government and to your insurance company. Some of it comes out of your pocket whether the job goes well or not. That extra pile of cost has a name. It is called labor burden.

Labor burden is everything you spend on a worker on top of their wage. Add the wage and the burden together and you get your true labor cost. That is the real number you should be bidding on, not the wage.

Skip the burden and your math is broken from the first line of the quote. You can be busy all year, do great work, and still wonder why your bank account is thin. You just never priced for it.

What goes into labor burden

Labor burden is not one thing. It is a stack of costs that ride along with every hour your crew works. Here are the big ones.

• Payroll taxes. You pay the employer side of Social Security and Medicare, plus state and federal unemployment tax. This alone is often around 8% to 10% of the wage.
• Workers comp. This insurance can be cheap for an office job and very expensive for a trade. Roofers and framers can pay 15% or more of payroll. A lower-risk trade might pay 3% to 5%.
• Benefits. Health insurance, paid time off, holidays, and any retirement match. If you offer these, they add up fast.
• Other costs. Some owners also fold in small tools, training, and uniforms.

Add these together and you get your burden rate. For most trades it lands between 25% and 40% on top of the wage. A high-risk crew might push past 40%.

How to calculate labor burden

Calculating your burden sounds hard, but it is just division. Here is the plain version.

First, add up everything you spend on a worker in a year on top of their wages. That means payroll taxes, workers comp, and benefits.

Second, find that same worker's total yearly wages.

Third, divide the burden by the wages. That gives you your burden percent.

Here is a quick example. Say a worker earns $52,000 in wages for the year. On top of that, you pay $4,500 in payroll taxes, $4,000 in workers comp, and $6,000 in benefits. That is $14,500 in burden. Divide $14,500 by $52,000 and you get about 28%.

Now the math is simple. A $25 wage with 28% burden costs you $25 times 1.28, which is $32 an hour. That is your true labor cost per hour. The labor cost calculator at the top of this page runs this for you in seconds, so you never do it by hand on a bid.

How to use the labor cost calculator

The tool at the top of this page keeps it simple. Here is how to get a real number for your next job.

1. Enter the hourly wage. Use what you actually pay the worker per hour.
2. Enter the number of workers. How many people are on this job.
3. Enter the hours on the job. The total hours each worker will put in.
4. Set your labor burden percent. Use your real rate. If you are not sure, 30% is a fair starting point for many trades.
5. Read the results. You will see the true labor cost for the job, the base wages, the burden cost in dollars, and the true cost per hour.

Watch the true cost per hour. That is the number most contractors never see. When you bid on that instead of the bare wage, your profit stops leaking away.

A real job, with real numbers

Let us run the default through the calculator and see it in action.

Say you have 2 workers at $25 an hour, working 8 hours on a job, with a 30% burden.

The base wages are easy. $25 times 2 workers times 8 hours is $400. That is the number a contractor who bids on the wage alone would use.

But the burden adds another 30% on top. That is $120. So the true labor cost for this job is $520, not $400.

That $120 gap is real money. If you bid the job at $400 in labor and the real cost is $520, you just ate $120 of your own profit. Do that on every job, week after week, and it adds up to thousands of dollars by the end of the year. The work looked profitable. The wage said so. But the true labor cost told a different story.

Why overtime and time-and-a-half change everything

Burden is not the only thing that quietly raises your labor cost. Overtime does too, and it can hurt even more.

When a worker passes 40 hours in a week, you usually owe time-and-a-half. That means their pay jumps to 1.5 times the normal wage. Your $25 worker now costs $37.50 an hour in wages alone. Then the burden stacks on top of that, so the true cost climbs higher still.

Here is the danger. You bid a job at the regular rate, the job runs long, and now your crew is in overtime. Every extra hour costs you 50% more than you planned, plus burden. A job that looked profitable on paper can flip to a loss in a single weekend of overtime.

The fix is to know this going in. If a job is likely to need overtime, bid for it. Build the higher rate into your price. For the full breakdown, this guide on how do you calculate time and a half walks through the math step by step. Run the overtime hours through the labor cost calculator at the higher wage and you will see the real hit before you ever sign the bid.

What bidding on the wage alone does to your profit

This is the mistake that quietly drains contractors, so it is worth slowing down on.

Picture two contractors. Both pay their crews $25 an hour. Both do the same work in a year.

The first one bids on the wage. He uses $25 an hour in every quote and never thinks about burden. His real cost is $32 an hour, so he loses about $7 of profit on every labor hour. Across a year of work, that is tens of thousands of dollars gone. He stays busy and broke.

The second one bids on the true labor cost. She knows her burden is 28%, so she uses $32 an hour in every quote. Her prices are a little higher, but they cover the real cost of the work. She wins fewer races to the bottom, but she keeps the money on the jobs she does win.

Same trade. Same crew. Same wage. The only difference is the number they bid on. It also helps to understand gross margin vs gross profit, so the profit you bid for is the profit you actually keep.

Stop doing this math by hand on every job

Once you know your true labor cost, the next problem is getting it right on every single quote without a spreadsheet you lose track of.

If you are still pricing on paper, start with a clear job estimate template and build your true labor rate right into it. That way you are never tempted to drop back to the bare wage when you are in a hurry.

The calculator on this page shows you the true cost of labor on a job. The next step is making sure you never bid below it again.

How Procured keeps your labor cost honest

This is where software earns its keep. Procured is built for trades businesses, and it tracks crew time per job so you can see your real labor cost on the work you actually do.

Instead of guessing your hours after the fact, you track them as they happen. Procured shows what each job is really costing you in labor, burden and all, so you can compare it against what you bid. If a job is running long or slipping into overtime, you see it early, not at the end of the month when the loss is already baked in.

You set your labor rates once, and every quote and invoice uses them. You can send a clean quote from your phone, get it signed, and turn it into an invoice when the work is done. No more bidding on the bare wage because you were rushing.

The calculator on this page shows you the right number. Procured makes sure you charge it on every job.

The bottom line

The wage on the paycheck is not what your crew costs you. Payroll taxes, workers comp, and benefits add roughly 25% to 40% on top, so a $25 worker really costs about $32 an hour. Bid on the wage alone and you give away profit on every job, every week, all year.

Use the labor cost calculator at the top of this page on your next bid. Enter the wage, the crew, the hours, and your burden, and bid on the true number you see. Then let Procured track your real labor cost on every job after that.

Ready to stop underbidding the work? Book a demo and see how Procured shows your true labor cost on every job.