Labor Burden Rate: The 44% Most Bids Miss

Your labor burden rate is probably right and still costing you money, because the percentage was never the number that decided the job.

The short answer

Start at 44% on top of base wages if you run a construction or trades business in the United States, then adjust up or down based on your workers compensation class rate and what you actually spend on benefits.

That 44% is not a rule of thumb. The Bureau of Labor Statistics Employer Costs for Employee Compensation release for March 2026 reports construction industry total compensation at $51.23 per hour worked, of which $35.54 is wages and salaries. The remaining $15.69 is benefits. Divide $15.69 by $35.54 and you get 44.1%.

Now the part almost nobody says out loud: that percentage is the easy half of the problem, and it is not where contractors lose money.

Why every calculator says 30% and every calculator is misusing it

Look at what the top-ranking guides quote. Autodesk says an employer can pay an average of 40% of the standard hourly wage. Bridgit puts the construction average at 30% to 40%. Miter, which is otherwise the sharpest guide in the results, lands on 25% to 40%. hibob says fully burdened cost runs 25% to 40% higher than salary.

The number those pages are reaching for comes from BLS. But BLS reports benefits as a share of total compensation, and total compensation is the bigger denominator. For construction, $15.69 of benefits against $51.23 of total compensation is 30.6%. That is the 30% everyone repeats.

You cannot use 30.6% as a markup. If you take a $35.54 wage and add 30.6%, you get $46.42. The actual cost is $51.23. You are short by $4.81 an hour, every hour, on every job.

The same confusion shows up in the formula itself. Bridgit's worked example divides $650,000 of total labor cost by $500,000 of direct labor, calls the result a labor burden rate of 130%, and then says it means an additional $0.30 per dollar of wages. Both statements are in the same paragraph. One is a multiplier, the other is a rate, and a contractor who copies the wrong one into a spreadsheet prices a job at a third of its labor cost.

Pick a convention and write it on the spreadsheet:

• Burden rate = indirect costs divided by wages. A $30 wage with $13.23 of indirect cost is a 44.1% burden rate.
• Burden multiplier = total cost divided by wages. The same employee is a 1.441 multiplier.

Never use the words interchangeably in front of a bookkeeper.

Your class code decides your burden, not your industry

The published "construction average" hides a spread wide enough to bankrupt the wrong shop. Workers compensation is priced per $100 of payroll by class code, and the codes are not close together.

Rates from Workers Compensation Shop for codes 5190 and 5183, FO Agency for code 5187, Contractor Accelerator and Dane Group for code 5551, and WSIB's confirmed 2026 average rate.

A roofer and an electrician in the same city, paying identical wages, offering identical benefits, can be five points of wages apart on workers compensation alone. Anyone who tells you the construction burden rate is 30% has not looked at your declarations page.

Two things follow. First, calculate burden by classification, not company-wide. A foreman, an installer and an apprentice usually sit in different codes with different overtime patterns. Second, check that your codes are right. Miscoding self-performed work into a higher-rated class is a common and expensive filing error, and it inflates your burden rate while you are busy blaming benefits.

The denominator is where the money actually leaks

Here is the part the ranking pages skip entirely.

Every guide teaches you to compute a percentage and stop. But a percentage of a wage is a cost per hour worked. You do not sell hours worked. You sell hours you can put on an invoice, and the gap between those two numbers is enormous.

ServiceTitan's own contractor playbook does the arithmetic and it is worth reading twice. Start with 2,080 paid hours. Subtract seven statutory holidays and ten vacation days, which is 136 hours, and you are at 1,944 available hours. Then apply utilization. ServiceTitan states that for most service companies 30% is considered a good efficiency rate and 50% would be extremely efficient, because technicians lose time to travel and fuel stops, free estimates, warranty callbacks, stocking trucks, and paperwork.

Run the multiplication: 1,944 hours at 30% utilization is 583 billable hours per technician per year.

Project-based crews look nothing like that. Michael Stone at Markup and Profit plans on 36 billable hours a week over 50 weeks, which is 1,800 billable hours per employee. Same trade, same country, three times the sellable hours.

Now take one $30 an hour employee and price them three ways.

Annual fully burdened cost of $84,039, which is $43.23 multiplied by 1,944 hours worked, divided by billable hours.

That is the same person, the same wage and the same 44.1% burden rate producing a threefold swing in the number you must clear before overhead and profit. A contractor whose burden math stops at "$30 becomes $43" is not wrong. They are just answering a question that does not price jobs.

This is exactly what an owner in r/Contractor was pointing at when a first-time hire asked what an $18 to $20 an hour helper really costs. The reply: "A lot of first hires look cheap until you see the true cost per billable hour." And it explains a thread in r/electricians where a newly licensed C-10 contractor worried that $125 to $150 an hour felt high, while a commercial electrician in the same thread told him he was low and added that "an employee in California will cost you on average double what you're paying them." At 50% utilization, double is roughly what the math produces.

The national benchmark is about to change under you

If you benchmark against BLS, mark this down. The Bureau of Labor Statistics has announced that with the March 2027 release of December 2026 data, ECEC will remove workers compensation costs from the series.

For most industries that is a rounding note. For contractors it removes the single most trade-variable line in the whole calculation, the one that separates a roofer from an electrician. Any burden benchmark you pull from ECEC after that date will describe a business with no workers compensation premium, which is no construction business at all.

The practical consequence is simple. Stop treating a national average as your number, and start pulling workers compensation from your own declarations page. You were going to have to do that anyway. Now you have a deadline.

If you run payroll in Canada, the lines are different

Most guides that rank for this query are written for a US employer, which makes them quietly wrong north of the border. The Ontario statutory load is lighter than the US equivalent, and it is lighter in a way that surprises people.

Take the same $30 an hour employee, $62,400 a year.

Rates as published by AEC Benefits from the CRA payroll deductions tables and WSIB's confirmed 2026 rates. WSIB set the 2026 average construction premium rate at $1.23 per $100 of insurable payroll, down from $1.25, and raised maximum insurable earnings to $121,700 from $117,000.

Two things in there catch people out. Employer Health Tax is exempt on the first $1 million of Ontario payroll, so most shops under about a dozen employees pay nothing, and calculators that add 1.95% are overstating your burden. And CPP2 only bites in the $74,600 to $85,000 band, which means a raise that pushes a foreman across $74,600 costs more per dollar than the raise before it.

The bigger point: 13% statutory is a floor, not a burden rate. Benefits, tools, truck, phone, training and paid statutory holidays sit on top, which is how an Ontario shop still lands in the same 35% to 45% neighbourhood as its US counterpart while getting there through completely different lines.

The burden line that arrives twelve months late

There is one burden cost that never appears in any calculator, and it is the one that ends years.

If you pay a subcontractor who does not carry valid workers compensation coverage, your insurer's premium audit reclassifies those payments as your payroll. The formula auditors apply is the gross subcontract amount multiplied by a labor ratio, multiplied by the class rate per $100, multiplied by your experience modifier. When invoices are not itemized, the default labor split is typically 50%, and unverified scopes get defaulted into the highest-rated classification on site.

On a $40,000 roofing subcontract at a $24.80 class rate with a 1.10 modifier, that is a back-premium bill of roughly $5,456, arriving after the job is closed, invoiced and spent.

An owner in r/Contractor put the defense plainly: document that every sub on site has workers compensation or get a signed and notarized exemption, because if you cannot prove they had coverage when they were on site, you get charged for insuring them. A certificate that expired mid-project counts as no certificate.

Collect certificates before the first pay application, not before the audit.

Burden, overhead and shop rate are three different numbers

A lot of the confusion in this topic is really a naming problem. There are three numbers in the chain and contractors routinely use one where they meant another.

1. Burden is what an employee costs you beyond their wage. Payroll taxes, workers compensation, benefits, paid time off, training, PPE, phone, truck. It scales with headcount and it belongs in cost of goods sold.
2. Overhead is what the business costs whether or not anyone works. Rent, software, insurance other than workers compensation, advertising, the office manager, your own salary. It does not belong in job cost and it is recovered through markup.
3. Shop rate is burden plus a share of overhead plus profit, divided by billable hours. It is the only one of the three you ever say out loud to a customer.

Getting this order wrong is the most common pricing failure in the trades. If you want the markup side of the chain, we covered it separately in how to price a job as a contractor, including why a 30% markup produces a 23% margin.

Build your own number in twenty minutes

You do not need software for this. You need last year's payroll summary and your insurance declarations page.

1. Pick one classification. Installer, foreman or apprentice. Not a company average.
2. Pull annual gross wages for a representative employee in that class.
3. Add statutory costs. United States: FICA at 7.65%, FUTA at 0.6% on the first $7,000, and your state unemployment rate, which is experience rated and varies widely. Ontario: CPP, EI at the 1.4x employer multiplier, vacation pay, and EHT only if payroll exceeds $1 million.
4. Add workers compensation from your declarations page, at your class rate and your experience modifier. Not the national average.
5. Add everything per-employee. Health and retirement contributions, phone, truck allowance or assigned vehicle cost, tools and PPE, certification and safety training time.
6. Divide by hours actually worked, meaning 2,080 minus holidays and paid time off. That gives your burden rate and your cost per hour worked.
7. Now divide the annual total by billable hours. Pull the real number from last year's timesheets, not an aspiration. This is the number that prices jobs.
8. Re-run it after every insurance renewal. Workers compensation and health premiums are the volatile inputs and they move without warning.

What a defensible answer looks like

If someone asks what your labor burden rate should be, the honest answer has three parts.

The percentage. Around 44% on top of wages for US construction, per BLS March 2026. Lower for a low-hazard class code with minimal benefits, higher for roofing or a shop with real health coverage. Around 13% statutory in Ontario before benefits, tools and truck.

The cost per hour worked. Wage multiplied by one plus your burden rate. For a $30 wage at 44.1%, that is $43.23.

The cost per billable hour. Annual burdened cost divided by hours you can actually invoice. For the same employee, somewhere between $47 and $144 depending on how your business runs.

The first number wins arguments with your bookkeeper. The third number decides whether you are still in business in five years.

The bottom line

The reason "what should my labor burden rate be" has no clean answer is that it is two questions wearing one coat. The percentage is well documented and easy: BLS says construction benefits run 44% on top of wages, your workers compensation class code moves it several points either way, and Ontario employers get there through a different and lighter set of statutory lines.

The number that actually matters is fully burdened cost per billable hour, and there is no benchmark for it because it is a fact about your dispatch board rather than your payroll. A $30 an hour employee can cost $47 or $144 per sellable hour in the same trade in the same year. If you have never calculated the second number, you have been pricing against the wrong cost since the day you hired your first helper.

Run it once. Then run it again after your next insurance renewal.