How to Estimate · Labor Cost
How to Calculate Labor Cost: The Burdened Rate Formula
How to calculate labor cost as a burdened hourly rate: wage, payroll taxes, insurance, and benefits, divided by the hours you actually bill, not the hours you pay for.
How do you calculate labor cost?
To calculate labor cost, add what you pay a worker to what it costs to employ them, divided by billable hours. That total is the burdened labor rate: wage plus payroll taxes plus insurance plus benefits, divided by billable hours. Skip any piece and you underbid the job by the amount you left out.
What is the burdened labor rate formula?
Four inputs build the burdened rate. Two are fixed by federal law; the rest depend on your state and your crew.
| Input | What it covers | Rate or note | Source |
|---|---|---|---|
| Base wage | What you pay the worker per hour | Varies by trade; $31.55 mean for carpenters | BLS OEWS, May 2025. |
| FICA (Social Security and Medicare) | Employer-paid payroll tax on every wage dollar | 7.65 percent (6.2 plus 1.45) | IRS Topic 751. |
| FUTA | Federal unemployment tax, capped early | 0.6 percent net, on the first $7,000 per worker per year | IRS FUTA page. |
| Insurance and benefits | Workers’ comp, health, retirement, if offered | No single figure; state and shop specific | Your state rate page. |
Memorize the four rows, not one blended percentage. The FUTA row caps out early in the year, and the insurance row has no honest national average.
Why isn’t your hourly wage your real labor cost?
Because payroll tax rides on every dollar you pay, billable or not. FICA runs 7.65 percent employer-paid (IRS Topic 751); FUTA adds 0.6 percent net on the first $7,000 (IRS). Both apply to drive time and cleanup the same as billable work.
Turn a job photo into an itemized estimate, free →
How to calculate labor cost, step by step
Run these four moves in order, every time.
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Find the base wage
Use what you actually pay, or a BLS OEWS benchmark for a new hire. Carpenters run $31.55 mean, $29.12 median (May 2025).
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Add the statutory payroll taxes
Apply 7.65 percent FICA to the annual wage, then 0.6 percent FUTA on the first $7,000 only.
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Add insurance and benefits you actually pay
Pull your comp premium from your state page, plus health or retirement cost. There is no safe national figure to substitute.
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Divide by billable hours, not paid hours
Divide the total by billable hours, not hours on the payroll register. That gap is where an hourly-wage estimate quietly loses money.
Worked example: what does a carpenter really cost per hour?
Start from the BLS OEWS May 2025 mean wage for carpenters, $31.55 an hour. At 2,080 paid hours a year that is $65,624, close to BLS’s own reported annual mean of $65,630.
| Line | Amount | Calculation |
|---|---|---|
| Base wage, annualized | $65,624.00 | $31.55 times 2,080 hours. |
| FICA, employer share | $5,020.24 | $65,624 times 7.65 percent. |
| FUTA, net | $42.00 | $7,000 times 0.6 percent. |
| Wage plus statutory payroll tax | $70,686.24 | Sum of the rows above. |
| Per hour paid, 2,080 hours | $33.98 | $70,686.24 divided by 2,080. |
| Per billable hour, example 1,650 hours | $42.84 | $70,686.24 divided by 1,650. |
That last row uses 1,650 as an example billable-hour count, not a sourced figure. It shows the mechanism: the same annual cost spread over fewer billable hours produces a higher rate.
What about workers’ comp and benefits?
There is no honest single workers’ comp number to give here. Premiums are set per classification code and per state, so the same trade can carry very different rates from one state to the next. Pull your class code and rate from your state’s rate page or carrier; health and retirement work the same way.
Put the rate to work
SimplyWise Cost Estimator turns a job-site photo into an itemized estimate in about 6 seconds. Material, labor, and fee lines are editable, so enter the burdened labor rate you just calculated on the labor line. Send a branded quote the client signs to approve. It is $29.99/mo or $239.99/yr, about $20/mo on annual, with a 7-day free trial.
Keep reading
- Contractor Hourly Labor Rates by Trade: BLS wage benchmarks for every trade.
- Markup vs Margin in Construction: what to add on top to profit.
Sources
Government payroll tax rates
- IRS Tax Topic 751, Social Security and Medicare Withholding Rates, verified 2026-09-25.
- IRS, FUTA Credit Reduction, verified 2026-09-25.
Wage data
- BLS OEWS, May 2025 national estimates, occupation 47-2031 Carpenters, captured 2026-09-25.
- SimplyWise Cost Estimator on the App Store, 4.8 rating, verified 2026-09-25.
Frequently asked questions about how to calculate labor cost
The formula
How do you calculate labor cost?
Add wage, payroll taxes, insurance, and benefits into one figure, then divide by billable hours, not paid hours. That result is your burdened labor rate, the real hourly cost of the worker.
What percentage should I add for payroll taxes?
7.65 percent FICA on the full annual wage, plus 0.6 percent net FUTA on the first $7,000 that year (IRS). FUTA stops adding cost once that $7,000 is paid.
The numbers
How much does a carpenter cost per hour in 2026?
BLS OEWS puts the May 2025 mean wage for carpenters at $31.55 an hour, median $29.12. Add FICA and FUTA and the wage alone already costs $33.98 an hour paid, before insurance or benefits.
What is a burdened labor rate?
The full hourly cost of a worker once payroll tax, insurance, and benefits are added and divided by billable hours. It runs higher than the pay-stub wage, sometimes by a wide margin once billable hours drop well under paid hours.
Pricing the job
Can I measure the job with my phone camera instead of a tape?
Tape the job or start from a photo. SimplyWise Cost Estimator turns a job-site photo into an itemized estimate in about 6 seconds. You then enter your burdened labor rate on the labor line. On a Pro iPhone, the room scan captures measurements with LiDAR. Every line stays editable.
Does SimplyWise Cost Estimator calculate labor cost for me?
It builds material, labor, and fee line items, each with unit, quantity, and price per unit. You enter the rate you calculate on the labor line. Pricing is $29.99/mo or $239.99/yr, with a 7-day free trial.
Turn a burdened labor rate into a bid that holds margin.
Snap a photo and get an itemized estimate with editable labor lines. Free to try, then $29.99/mo or $239.99/yr after a 7-day trial.