Ask ten contractors how they are calculating labor burden on gross payroll and you will get ten different answers – and all ten will swear that their number is right! Here is how we calculate it using the example of a commercial carpenter with a class code of 5403 :
$10.00 Gross Pay
$ 1.3270 (+) Workman’s Compensation Rate: 13.27% charged by State Fund for the 5403 class code (2009 rates)
$ .0531 (+) NYS assessment: charged on anyone working in “commercial”. It is 4% of the workman’s comp premium.
$ .0690 (-) Experience Modifier: ours is .95 so we save 5% of the comp premium. Yours may be more or less.
$ .6925 (+) Unemployment: Your rate could be as much as 9.25%
$ .0750 (+) State Reemployment Service fund
$ .0800 (+) Federal Unemployment (Form 940)
$ .0200 (+) Disability Insurance
$ .7650 (+) FICA: This is the employer’s contribution to the Social Security fund and the Medicare fund
$ .7000 (+) Liability Insurance: What percent of your gross payroll is your liability premium?
$ 1.5000 (+) Medical benefits, vacation days, sick days, 401k, and first aid costs. Estimate this number based on previous years as a percentage of your gross payroll.
$ .2500 (+) The administrative cost to process all of the above. If you have a few employees then this number could be as much as $1 or $2. If you are a large employer, then this is likely less.
Burden is just over 50% or $5.33 of every $10 paid out. For easier math, you might just multiply 1.55 by each dollar of wages that you pay out to arrive at your true cost of labor.
How do you calculate burden?? Leave a comment here.