When contractors build a job estimate, labor is often entered at the worker’s hourly wage. If someone earns $25 per hour, it’s easy to assume labor costs $25 per hour.
But that number rarely reflects the true cost of putting a worker on a job site.
In addition to wages, employers are responsible for payroll taxes, insurance, and other employment-related expenses. These costs don’t show up on an employee’s paycheck, but they still come directly out of the business. When they’re overlooked, a project that looks profitable on paper can quietly lose money in the field.
A fully burdened labor rate (FBLR) shows the true cost of one hour of labor by combining wages with all required employment-related costs.
Understanding this number matters for any general contractor or construction manager who needs to:
- Prices construction projects accurately
- Plans crew size and company growth
- Compare in-house labor to subcontractors or temporary crews
This article explains what a fully burdened labor rate is, why it matters in construction, how to calculate it, and when it should be used.
What Is a Fully Burdened Labor Rate?
A fully burdened labor rate is the true hourly cost of labor to a business.
It includes the worker’s hourly pay plus all additional costs required to employ that worker.
In simple terms, it answers the question: “What does one hour of labor actually cost my business?”
This is different from hourly pay: Hourly pay is what the worker earns. The fully burdened labor rate is what the business actually spends to have that worker on site.
Why a Fully Burdened Labor Rate Matters
Using only wages to price labor creates blind spots.
When labor is underpriced:
- Jobs are bid too low and profit margins shrink
- Crews may be overworked or mismanaged
- Costs appear manageable on paper but grow in reality
A fully burdened labor rate helps prevent these problems by showing the full cost of labor upfront. This leads to more accurate bids, better crew planning, and more predictable job costs.
When You Should Use a Fully Burdened Labor Rate
A fully burdened labor rate should be used whenever labor cost affects project decisions, including:
- Job bids and pricing
- Crew scheduling and scaling
- Comparing in-house labor to subcontractors or temporary crews
- Planning for overtime or extended project timelines
It is not needed for personal wage discussions or informal estimates. It is a business tool meant for accurate planning and pricing.
W-2 Employees vs. 1099 Independent Contractors
Labor costs should be calculated very differently depending on how workers are classified. For general contractors and construction managers, this distinction has a direct impact on job costing, risk, and profitability.
W-2 Employees
For W-2 employees, using a fully burdened labor rate is essential because the employer carries significant additional costs beyond hourly wages.
In addition to base pay, employers are responsible for:
- Payroll taxes
- Workers’ compensation insurance
- Unemployment insurance
- Portions of general liability and other insurance
- Paid time off and holidays (if offered)
- Training, safety, and compliance
- Administrative and payroll overhead
Another key factor is downtime — any period when a worker is paid but not actively producing billable work. Common examples in construction include:
- Waiting for materials or permits
- Traveling between job sites
- Weather delays
- Meetings or safety briefings
When downtime is accounted for, the fully burdened labor rate increases because these fixed employment costs are spread over fewer productive hours. A worker paid for 40 hours may only produce 32–36 revenue-generating hours in a given week.
1099 Independent Contractors
Independent contractors are usually paid a fixed hourly or project rate and handle their own taxes and insurance.
For general contractors, what matters is not the subcontractor’s internal costs, but the total impact on your project. This includes:
- Scheduling delays that affect project timelines
- Extra coordination or supervision time for your team
- Potential quality issues that require rework
- Travel or logistics your crew still covers
Because you do not directly pay many of these employment-related costs, a fully burdened labor rate is not calculated for 1099 workers the same way it is for W-2 employees. Instead, you can determine an effective labor rate that allows you to compare independent contractor costs to your in-house labor on an apples-to-apples basis.
However, 1099 labor is not automatically less expensive. Higher hourly rates, limited control over scheduling and work methods, and potential compliance risks can quickly offset any perceived savings.
Most importantly, worker classification must follow legal guidelines. Misclassifying workers as independent contractors instead of employees can result in back taxes, penalties, and insurance complications — risks that can be especially costly in construction.
Costs Included in a Fully Burdened Labor Rate (W-2)
Before calculating the rate, it helps to understand what goes into it. Common cost categories include:
- Base hourly wages
- Employer payroll taxes
- Workers’ compensation insurance
- General liability and related insurance allocation
- Paid time off
- Training, safety, and compliance costs
- Labor-related administrative overhead
- Downtime / non-productive hours
Not every business will include the same items, but the goal is accuracy and consistency.
How to Calculate a Fully Burdened Labor Rate
The process is straightforward:
- Start with the worker’s base hourly wage
- Calculate employer payroll taxes as an hourly amount
- Add workers’ compensation costs
- Allocate insurance costs tied to labor
- Convert paid time off and downtime into an hourly cost
- Add training, safety, and administrative labor costs
Annual costs are divided by productive hours to convert them into hourly amounts. Downtime reduces productive hours, so the fewer productive hours, the higher the hourly cost.
Example Calculation
Assume a worker earns $25 per hour. They have 80 hours of paid time off and an estimated 40 hours of downtime per year. Total working hours are 2,080 per year.
| Cost Category | Hourly Cost |
|---|---|
| Base Wage | $25.00 |
| Payroll Taxes | $2.50 |
| Workers’ Compensation | $2.50 |
| Insurance Allocation | $1.00 |
| Paid Time Off | $0.96 |
| Downtime | $0.48 |
| Training & Admin | $1.05 |
Fully Burdened Labor Rate: $33.49 per hour
Including downtime and PTO increases the effective cost. In this example, the real cost is about 34% higher than the base wage.
Typical Fully Burdened Labor Rates by Trade
The fully burdened labor rate is always higher than the base wage. The exact increase depends on the trade, required certifications, insurance costs, and expected downtime. The table below shows typical fully burdened labor rate increases over base wage for common construction trades:
| Trade / Role | Base Wage | Typical FBLR Increase | Typical FBLR |
|---|---|---|---|
| Carpenter | $25/hr | 30–35% | $32.50–$33.75/hr |
| Electrician | $30/hr | 35–40% | $40.50–$42/hr |
| Plumber | $28/hr | 33–38% | $37.20–$38.64/hr |
| Painter | $20/hr | 25–30% | $25–$26/hr |
| Laborer / General Helper | $18/hr | 30–35% | $23.40–$24.30/hr |
| HVAC Technician | $32/hr | 35–40% | $43.20–$44.80/hr |
| Site Supervisor / Foreman | $35/hr | 25–30% | $43.75–$45.50/hr |
Notes:
- Percent increases include payroll taxes, insurance, PTO, downtime, and admin overhead.
- Skilled trades generally have higher burdens due to licensing, insurance, and downtime risk.
- Laborers and helpers have lower base wages but still carry significant burden due to downtime and training.
- Supervisors often have slightly lower FBLR percent increases because some overhead is distributed across the crew.
This table can help you quickly estimate labor costs by trade when planning bids, crews, or project schedules, but it’s important to run your own numbers.
Common Mistakes to Avoid
- Using hourly wages instead of true labor cost when bidding
- Ignoring workers’ compensation, insurance, or downtime
- Overlooking indirect costs associated with 1099 labor
- Believing labor burden only matters for large companies
These mistakes usually lead to underpricing and long-term margin problems.
How General Contractors Should Use This Number
A fully burdened labor rate is more than an accounting figure — it’s a decision-making tool that affects estimating, scheduling, hiring, and overall profitability. General contractors can use this number to:
Price Jobs Accurately and Protect Margins
When labor is estimated using only base wages, bids often come in too low. A fully burdened labor rate ensures every hour on the schedule reflects the true cost of putting a worker on site. This leads to tighter estimates, healthier margins, and fewer “we made money on paper” projects that underperform in the field.
It also helps when pricing change orders, time-and-materials work, and cost-plus contracts, where labor rates must be clearly justified.
Schedule and Scale Crews Effectively
Knowing the real hourly cost of each worker helps contractors make smarter staffing decisions. You can evaluate whether adding another crew member will actually increase profit or just raise overhead. It also makes it easier to forecast labor costs as workload increases and the company grows.
Compare Employees to Subcontractors
A fully burdened rate allows you to make apples-to-apples comparisons between in-house labor and subcontracted work. Without it, subcontractor pricing may look high — until you realize your internal labor costs more than you thought once taxes, insurance, and downtime are included.
This is especially important when deciding whether to self-perform work or subcontract it.
Plan for Delays and Downtime
Construction rarely runs on a perfect schedule. Weather, inspections, material delays, and coordination issues all reduce productive hours. When you understand your fully burdened rate, you can see exactly how costly lost time is and build more realistic labor allowances into schedules and budgets.
Improve Productivity Tracking
Once you know your true hourly labor cost, tracking productivity becomes more meaningful. You can measure labor cost per unit (per square foot, per fixture, per task, etc.) and quickly spot when a crew or phase of work is trending over budget.
Strengthen Financial Forecasting
Labor is one of the largest and most variable costs in construction. Using a fully burdened labor rate helps with cash flow planning, break-even analysis, and revenue forecasting because your projections are based on real employment costs, not just wage assumptions.
Final Takeaway
Labor always costs more than the paycheck.
A fully burdened labor rate does not create new costs—it reveals the ones that already exist. Including downtime and accounting for indirect costs of labor gives a realistic picture of what labor really costs on a job site.
General contractors who understand this number can price work with confidence, manage crews efficiently, and scale operations without eroding profits.
For contractors looking to simplify workforce management and find reliable, skilled construction crews, Kijanix Crews provides vetted, insured construction crews ready for project-based assignments in North Texas. Knowing your fully burdened labor rate combined with access to dependable crews helps you plan, bid, and execute jobs more efficiently.