How to Calculate your Labor Burden - YouTube

Hi I'm Karine from 24hr Bookkeeper. Why should you care about labor burden? We've

all heard. You should be tracking your labor burden. Great, but how do I do that

exactly? I'll tell you all about it today. I'm also gonna tell you why it's

important, what kind of information to include, and how you can incorporate it

on all your jobs moving forward. When we think of an employee cost, we might only

be thinking about their actual wage, but if you really think about it, an employee

costs a lot more than just their wage because you have to pay taxes, health

insurance, vacation pay, or you could have provided them with a company cellphone.

Make sure you don't forget that these are really important costs, and they

should be included as part of your employees cost calculation. As much as I

didn't give you the description for labor burden, that's basically what it is.

The employee wage plus every tax and benefit above it. This information is

most crucial when you create your estimate. When you figured labor hours,

you might have taken their wage times a bunch of hours, or you used your billing

rate, which is actually different than the labor burden. Your billing rate is

what your customers pay. So, if that's what you're using in your estimate, after

you've calculated all your costs, you're likely using basic markup. Why not figure

your cost and then mark-up the job from there? You might hear someone mention you

should calculate your full burden rate. If so, this is your employee wage plus

everything above it as cost rate or a fully burden rate. Remember this is

different than your billing rate, which is really what your customer is paying

you, and not the cost of that actual employee. I'm asked frequently to

calculate the burden rate. So, I'm gonna jump in and show you how to calculate

one. First of all, you want to know the employees hourly wage. This is strictly

their gross salary or their hourly pay. If you have an employee that is paid

$50,000 a year, as an employer you are also required to pay your portion of

those payroll taxes on that employee. You'll have to pay Social Security which

is 6.2 percent. We're going to take this percentage, and multiply it by the wage.

You also need to pay Medicare tax which is 1.45%. You will

also take that percentage and multiply it by the wage. Every state is different,

but you will likely have to pay unemployment on the hours worked for

that employee. In this example, unemployment cost the

company $2,000 per year. For workers compensation,

this is usually a per hour fee. In this example, we're gonna say is 35 cents per

hour worked. Remember, I'm calculating this on an annual basis, and then I'm

gonna break it down by hours. So my cost without any benefits would be fifty six

thousand five hundred and fifty three dollars. I'm a company that sponsors a

health insurance plan, and it cost me $10,000 for this employee. So I'm adding

it to my calculation. This brings me to a grand total of sixty six thousand five

hundred fifty three dollars. All full-time employees work 2,080 hours in

one year. So, I'm going to divide my cost by that employees hours. There are no

other benefits for the sake of this example. Based on these calculations, my

employee costs a total of $31.99 per hour. Which is more than double their

wage. There could be a variety additional costs that I didn't include today like

fringe benefits, vehicle allowance, per diem, and more. A great benefit to being

able to identify your burden rate is to know if it makes sense for you to have

employees. You might find out that it's less expensive to outsource some of the

work versus hiring in-house or direct labor employees. Once you've got this

rate put together, it's really important that you utilize it in your estimates.

You should use this calculation for all your employees, or even keep a cheat

sheet. You can categorize your employees by group. So it'd be easier to calculate

based on the group they're in. For example, you might clump your carpenters

together or your superintendents together. They would have different cost

rates, obviously. You can also create a spreadsheet listing all your employees

and then having different columns for each cost. So, if something changes you can

easily change one of the numbers. If you're going to use a timesheet app or

project management software or even something as simple as QuickBooks, you

would be able to put this cost rate in the employee profile to calculate the

true hours worked for employees on that project or even pull reporting from it.

Thanks for watching this video. For more videos, make sure to click subscribe. You

can also find more info on financial management by going to our website at

www.24hrbookkeeper.com Which can be found in the comments! See ya!