Key takeaways
- Labor burden is every cost of employing a tech beyond the hourly wage, expressed as a percentage of wages or a cost per hour.
- Federal payroll taxes are fixed and knowable: 6.2% Social Security and 1.45% Medicare from the employer, plus federal unemployment tax on the first $7,000[1][2].
- Divide by billable hours, not paid hours. Paid time off, training and drive time all raise the cost of each hour you can sell.
- Recalculate every January and whenever a pay plan, benefit or insurance rate changes.
What labor burden includes
Labor burden is the cost of having an employee on the payroll beyond the wage you agreed with them. It covers taxes the employer pays, insurance the law requires, benefits you choose to offer and the costs of putting a person in the field ready to work. Owners who price from the wage alone undercharge on every hour.
The scale is easy to underestimate. Benefits alone made up 30.0% of US private employer compensation costs in June 2026, or $14.07 of $46.89 per hour worked[3]. That figure does not include the truck, the tools or the hours you pay for but cannot bill.
- Benefits share of total compensation 30%
Source: U.S. Bureau of Labor Statistics, 2026[3]
Show the data
| Item | Value |
|---|---|
| Benefits share of total compensation | 30% |
There are two ways to express burden. The burden rate is total burden divided by gross wages, for example 34%. The fully burdened hourly cost is total cost divided by hours, and it is the number you need for pricing and job costing. Calculate both, but price from the hourly cost.
The components, one by one
| Component | How to calculate it | Where to find the rate |
|---|---|---|
| Social Security (employer) | 6.2% of wages up to the annual wage base | IRS Topic 751 |
| Medicare (employer) | 1.45% of all wages | IRS Topic 751 |
| Federal unemployment (FUTA) | 6.0% of the first $7,000 per employee, less a credit of up to 5.4% for state tax paid | IRS Topic 759 |
| State unemployment (SUTA) | Your assigned rate times the state wage base | Your state's rate notice |
| Workers' compensation | Rate per $100 of payroll for each class code | Your policy or state fund |
| Health and other insurance | Employer share of premiums per year | Benefits invoices |
| Retirement match | Match percentage times eligible wages | Plan documents |
| Paid time off | Vacation, holiday and sick hours paid but not worked | Your PTO policy |
| Training and certifications | Course fees, test fees, paid training hours | Training budget |
| Tools, uniforms, phone | Annual cost per tech | Purchase records |
| Vehicle | Annual cost of the assigned truck, or a per-mile proxy | Fleet records or the IRS business mileage rate |
Social Security tax stops at the wage base, which is $184,500 for 2026 earnings[1]. Few field techs earn that much, so for most of your team the full 6.2% applies to every dollar. With the maximum state credit, the effective federal unemployment rate is 0.6% of the first $7,000[2], which is small. State unemployment and workers' compensation vary far more, by state, by claims history and by trade, so use your own notices rather than averages.
Paid hours, worked hours and billable hours
The single biggest error in burden calculations is dividing by the wrong number of hours. Three different hour totals matter:
- Paid hours: everything on the paycheck, including vacation, holidays and sick time.
- Worked hours: paid hours minus time off. These are the hours the tech is actually on the clock.
- Billable hours: worked hours spent on customer jobs. Shop time, meetings, parts runs and some drive time are worked but not billable.
Burden per paid hour is useful for payroll budgeting. Burden per billable hour is what your prices must recover. The gap between the two is often larger than the entire tax burden, which is why technician efficiency and burden belong in the same conversation.
Worked example: one HVAC service tech
Example (fictional): an HVAC company pays a service tech $30.00 per hour for 2,080 paid hours, so gross wages are $62,400. For context, the median hourly pay for US HVAC mechanics and installers was $29.33 in May 2025[4].
Payroll taxes
Example: Social Security at 6.2% is $3,868.80 and Medicare at 1.45% is $904.80. FUTA after the full credit is 0.6% of $7,000, or $42. The state assigns 2.7% on the first $9,000, adding $243. Taxes total $5,058.60.
Workers' compensation
Example: the policy rate for this class code is $6.50 per $100 of payroll, so the cost is $4,056.
Benefits
Example: employer health premium $7,800 and a 3% retirement match of $1,872, totaling $9,672.
Field costs
Example: tools, uniforms and phone $1,500; certification and training courses $1,200. Total $2,700.
Add it up
Example: burden before the vehicle is $21,486.60, which is 34.4% of wages. Total employment cost is $83,886.60.
Divide by the right hours
Example: the tech takes 152 hours of paid time off, so worked hours are 1,928. Cost per paid hour is $40.33 and cost per worked hour is $43.51. If 75% of worked hours are billable (1,446 hours), cost per billable hour is $58.01.
Add the vehicle
Example: using the IRS business mileage rate as a proxy for full vehicle cost, 11,000 miles at 72.5 cents in the first half of 2026 and 11,000 at 76 cents in the second half add $16,335[5]. Fully burdened cost per billable hour becomes $69.31.
Example result: a tech paid $30 an hour costs this company about $69 for every hour it can bill. Any price below that loses money before materials, overhead or profit.
Choosing a vehicle method
Vehicle cost is often the second-largest burden item, and it is the one most often left out because it sits in a different part of the books. Pick a method and keep it:
- Actual cost: lease or depreciation, insurance, fuel, maintenance, tires and telematics for the truck assigned to the tech, divided by the year. Most accurate if your fleet records are good.
- Mileage proxy: business miles multiplied by the IRS standard mileage rate. The rate was 72.5 cents per mile for January to June 2026 and 76 cents from July 1, 2026[5]. Simple, but a heavy service van with ladder racks and stock costs more to run than the average car the rate reflects.
- Fleet average: total fleet cost divided by field trucks. Reasonable when trucks are similar.
Treat the vehicle as part of burden for pricing even if your accountant books it as overhead. It exists only because the tech needs it to reach customers. Our overhead cost control guide covers how to review fleet costs each quarter.
Burden for different pay plans
Commission, spiffs and overtime all change the calculation. Payroll taxes apply to commissions and bonuses as well as hourly wages, so a tech who earns a large sales bonus raises your Social Security and Medicare cost too. Overtime premium raises cost per hour worked without adding billable capacity, so model your peak season separately rather than using an annual average.
Apprentices usually have a lower wage but a higher burden as a share of wages, because training, ride-along time and a lower billable share fall on a smaller wage base. Show their cost separately so the investment in developing them is clear. A visible career path ladder makes that investment easier to justify and to recover.
Mistakes that understate burden
Most burden calculations are too low rather than too high. These are the usual causes, roughly in order of how much they cost:
- Dividing by paid hours instead of billable hours, which spreads cost across hours you can never invoice.
- Leaving the vehicle out because it is booked as overhead, even though the truck exists only to carry the tech to customers.
- Using last year's workers' comp rate after a renewal or a claim has pushed it up.
- Forgetting the employer cost of paid holidays when holidays are not tracked in the same system as vacation.
- Ignoring callback and warranty time, which is worked and paid but not billable, and which tends to rise with newer techs.
A quick test: multiply your fully burdened cost per billable hour by your total billable hours for the year and compare it with the total of wages, taxes, insurance, benefits and vehicle costs in your books. If the two numbers are far apart, one of the inputs above is missing.
Turning burden into an hourly price
Burden gives you the floor, not the price. To reach a selling rate per billable hour, add overhead per billable hour and the profit you need. Overhead covers dispatch, the office, insurance that is not payroll related, software and marketing. Profit pays for growth, debt and the cash reserve that carries you through the slow season.
Example (fictional), continuing the tech above: fully burdened cost is $69.31 per billable hour, overhead allocation is $42 per billable hour and the owner wants a 10% net profit. Cost before profit is $111.31; dividing by 0.9 gives a minimum selling rate of about $124 per billable hour. Flat-rate prices for common repairs should recover at least that rate on the hours each task usually takes, plus materials at their own margin.
If the resulting rate looks far above what the market pays, the answer is rarely to cut the burden. It is usually to raise billable hours through better scheduling and call handling, or to review overhead line by line.
Keeping the number current
- Recalculate every January when payroll tax wage bases, state unemployment rates and insurance renewals change.
- Update immediately after a raise, a new benefit, a workers' comp renewal or a change to the PTO policy.
- Keep one burden worksheet per pay grade rather than one for the whole company.
- Give the result to whoever maintains the price book and to whoever runs break-even analysis, so pricing and planning use the same cost.
- Compare actual billable hours with your assumption each quarter; if efficiency drops, cost per billable hour rises even when wages do not.
Burden is not a number to calculate once and file. It is the bridge between what you pay your team and what you charge your customers, and when it drifts, margins drift with it.
Frequently asked questions
What is a typical labor burden rate for contractors?
It depends heavily on your state, workers' comp class codes and benefits, so averages are unreliable. Calculate your own from payroll records; for field techs it is commonly well above the employer payroll tax rate once insurance, benefits and PTO are counted.
Is the employee's share of payroll tax part of burden?
No. The employee's Social Security and Medicare are withheld from their pay. Only the employer's matching share is a cost to the company.
Should owner-operators calculate burden?
Yes. Self-employed owners pay both halves of Social Security and Medicare through self-employment tax, plus their own insurance and vehicle. Pricing without them underpays the owner.
References
Internal Revenue Service (2026). Topic no. 751, Social Security and Medicare withholding rates (opens in a new tab) ↑
Internal Revenue Service (2026). Topic no. 759, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (opens in a new tab) ↑
U.S. Bureau of Labor Statistics (2026). Employer Costs for Employee Compensation — June 2026 (opens in a new tab) ↑
U.S. Bureau of Labor Statistics (2025). Heating, Air Conditioning, and Refrigeration Mechanics and Installers: Occupational Outlook Handbook (opens in a new tab) ↑
Internal Revenue Service (2026). Standard mileage rates (opens in a new tab) ↑