Understanding Calculator Labor Burden and the True Hourly Cost of an Employee

In today’s competitive business environment, accurately understanding and managing labor costs is crucial for maintaining profitability and making informed financial decisions. One of the most essential tools for this task is the calculator labor burden, which helps employers determine the true hourly cost of an employee. This calculation goes beyond the basic hourly wage, encompassing various employer-incurred expenses such as workers’ compensation insurance, employee income taxes paid by the employer, paid time off (PTO), benefits, and other insurance costs. This article delves into the importance of calculating labor burden and provides a comprehensive overview of the components that contribute to the actual hourly cost of an employee.

The Importance of Calculating Labor Burden

  1. Accurate Budgeting and Financial Planning:
    Calculating labor burden ensures that businesses can budget accurately. When employers understand the total cost of their workforce, they can make more informed decisions about hiring, resource allocation, and project planning. Without this insight, companies risk underestimating labor costs, leading to budget overruns and financial instability.
  2. Competitive Pricing:
    For businesses that bid on projects or set service prices, knowing the true cost of labor is essential. Accurate labor burden calculations enable businesses to set competitive yet profitable prices. Underestimating labor costs can result in underbidding, which erodes profit margins, while overestimating can make bids less competitive.
  3. Profitability Analysis:
    Understanding the actual hourly cost of employees helps in analyzing the profitability of different departments, projects, or products. It enables businesses to identify areas where labor costs are higher than expected and take corrective actions, such as optimizing processes or renegotiating terms with clients.
  4. Employee Cost Management:
    By accurately calculating labor burden, employers can identify opportunities for cost savings. This might involve adjusting benefit packages, optimizing workforce schedules, or implementing more efficient work processes. Effective labor cost management can enhance overall business efficiency and profitability.

Components of the Actual Hourly Cost of an Employee

1. Base Wages and Salaries

The starting point for calculating labor burden is the base wage or salary paid to employees. This is the straightforward hourly rate or annual salary agreed upon in employment contracts. While it forms the foundation of labor costs, it represents only a portion of the total expense.

2. Workers’ Compensation Insurance

Workers’ compensation insurance is a mandatory expense for most employers. It covers medical expenses and lost wages for employees who suffer work-related injuries or illnesses. The cost of this insurance varies depending on the industry, the company’s claims history, and the specific roles employees perform. High-risk industries, such as construction or manufacturing, typically face higher workers’ compensation premiums.

3. Employer-Paid Taxes

Employers are responsible for paying several types of taxes on behalf of their employees:

  • Social Security and Medicare Taxes (FICA): Employers must match the Social Security and Medicare taxes that employees pay, which currently amount to 6.2% and 1.45% of wages, respectively.
  • Federal Unemployment Tax Act (FUTA): Employers pay a federal unemployment tax to fund state workforce agencies. The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee per year.
  • State Unemployment Tax Act (SUTA): Similar to FUTA, SUTA taxes are state-specific and vary widely. These taxes contribute to state unemployment funds.

4. Paid Time Off (PTO)

Paid time off includes vacation days, sick leave, and holidays. These are benefits provided to employees while still receiving their regular pay. PTO is a significant component of labor burden because it represents paid non-productive time. To calculate the cost of PTO, employers must determine the average amount of PTO per employee and its associated cost.

5. Employee Benefits

Employee benefits can significantly increase the total labor burden. Common benefits include:

  • Health Insurance: Employers often cover a substantial portion of health insurance premiums for employees and their families.
  • Retirement Contributions: Many employers offer retirement plans, such as 401(k) plans, with matching contributions.
  • Life and Disability Insurance: These policies provide financial security to employees in the event of death or disability.
  • Other Perks: This category includes various fringe benefits such as tuition reimbursement, wellness programs, and transportation subsidies.

6. Additional Insurance Costs

Beyond workers’ compensation and health insurance, employers may incur additional insurance costs:

  • Liability Insurance: Protects the business from lawsuits or claims related to workplace injuries or negligence.
  • Property Insurance: Covers damage to business property, which can indirectly affect labor costs if it disrupts operations.

Calculating the Total Hourly Cost

To calculate the total hourly cost of an employee, employers must aggregate all these components. Here’s a step-by-step method:

  1. Calculate Annual Costs:
  • Sum up the annual base wage or salary.
  • Add the annual cost of workers’ compensation insurance.
  • Include the employer-paid portion of FICA, FUTA, and SUTA taxes.
  • Factor in the annual cost of PTO.
  • Add the annual cost of employee benefits.
  • Include any additional insurance costs.
  1. Determine Total Hours Worked:
  • Calculate the total number of hours the employee is expected to work annually. This is typically 2,080 hours for a full-time employee (40 hours/week x 52 weeks).
  1. Compute Hourly Cost:
  • Divide the total annual cost by the total hours worked to get the true hourly cost.

Example Calculation

Let’s consider an example for clarity:

  • Base Salary: $50,000
  • Workers’ Compensation Insurance: $1,500
  • Employer-Paid Taxes (FICA, FUTA, SUTA): $4,000
  • PTO (10 days): $1,923 (assuming a daily rate of $192.30)
  • Employee Benefits: $10,000
  • Additional Insurance Costs: $1,000

Total Annual Cost: $68,423

Total Hours Worked: 2,080 hours

True Hourly Cost: $68,423 / 2,080 hours = $32.90

Thus, the actual hourly cost of this employee is $32.90, significantly higher than the base hourly wage of $24.04 ($50,000 / 2,080).

If you want a done-for-you Excel application that handles all of this, give the Labor Burden Calculator a try: www.labor-burden-calculator.com

Conclusion

Accurately calculating the labor burden is essential for effective financial management, competitive pricing, and overall business profitability. By understanding the various components that contribute to the actual hourly cost of an employee, employers can make more informed decisions and strategically manage their workforce. This comprehensive approach ensures that all direct and indirect labor costs are accounted for, providing a clear picture of the financial impact of each employee on the business.

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What Are The Components Of Labor Burden?

Calculating labor burden is critical for any company that employs workers. Labor burden is the actual cost of employing a worker, including wages, payroll taxes, and employee benefits. However, the calculation of labor burden is not always straightforward. It involves understanding the components of labor burden and how they impact the total cost of employing a worker.

In this article, we will explore the components of labor burden in detail, and how an Excel-based Labor Burden Calculator can help companies accurately calculate their labor costs.

Components of Labor Burden

  1. Payroll Taxes

Payroll taxes are the taxes that employers are required to pay on behalf of their employees. These taxes include Social Security, Medicare, Federal Unemployment Tax (FUTA), and State Unemployment Tax (SUTA). The amount of payroll taxes varies depending on the employee’s salary and the employer’s location.

  1. Employee Benefits

Employee benefits include health insurance, retirement plans, paid time off, and other benefits that employers offer to their employees. These benefits can significantly impact the cost of employing a worker and can vary significantly depending on the employer.

  1. Workers’ Compensation Insurance

Workers’ compensation insurance is insurance that employers are required to carry to cover the cost of any injuries or illnesses that employees may sustain on the job. The cost of workers’ compensation insurance varies depending on the employer’s location, industry, and history of workplace injuries.

  1. Training and Development

Training and development costs include the cost of any training or education that employees may receive. These costs can include tuition reimbursement, professional development courses, and other training programs.

  1. Overhead Costs

Overhead costs include any indirect costs that are associated with employing a worker. These costs can include rent, utilities, office supplies, and other expenses that are necessary for running a business.

Calculating Labor Burden with an Excel-based Labor Burden Calculator

While calculating labor burden can be a complicated process, an Excel-based Labor Burden Calculator can simplify this process and provide accurate results quickly.

Here are some of the ways that an Excel-based Labor Burden Calculator can help companies accurately calculate their labor costs:

  1. Customization

Excel-based Labor Burden Calculators can be customized to meet the specific needs of a company. This means that companies can include specific employee benefits, payroll taxes, and other costs that are relevant to their business.

  1. Easy to Use

Excel-based Labor Burden Calculators are easy to use and require minimal training. Simply input the necessary data, and the calculator will do the rest.

  1. Accurate Results

Excel-based Labor Burden Calculators provide accurate results quickly. This is essential when estimating project costs or preparing budgets.

  1. Cost-effective

Excel-based Labor Burden Calculators are a cost-effective solution for calculating labor burden. Unlike expensive software solutions, Excel-based calculators can be created for free using pre-existing templates or by creating a custom calculator that meets the company’s specific needs.

  1. Transparency

Excel-based Labor Burden Calculators provide transparency in the labor cost calculation process. All calculations are visible, and any changes to the data are immediately reflected in the final cost calculation.

Calculating labor burden is essential for any company that employs workers. Understanding the components of labor burden and how they impact the total cost of employing a worker is critical to accurately estimating project costs, complying with labor laws, ensuring fair compensation, and controlling labor costs.

Fortunately, an Excel-based Labor Burden Calculator can simplify this process and provide accurate results quickly. If you want to learn more about how an Excel-based Labor Burden Calculator can help you accurately calculate your labor costs, visit our website today. Our software is customizable, easy to use, provides accurate results quickly, cost-effective, and transparent. Don’t let labor costs remain a mystery


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What Is Labor Burden Calculation?

Calculating labor burden is essential for any company that employs workers. This calculation provides an accurate picture of the total cost of employing an individual, including wages, payroll taxes, and employee benefits. Without an accurate understanding of labor burden, companies risk underpaying employees, overspending on employee-related expenses, and inaccurately estimating project costs.

In this article, we will explore why the calculation of labor burden is critical for any company and how an Excel-based Labor Burden Calculator is the best tool that exists to help companies determine their actual hourly labor costs.

Why Calculate Labor Burden?

Labor burden is the actual cost of employing a worker. It is more than just the employee’s hourly wage; it includes other costs that are directly or indirectly related to the employee. These costs include payroll taxes, workers’ compensation insurance, employee benefits, and more.

Calculating labor burden is essential for several reasons:

Accurate Cost Estimation: Accurately calculating labor burden allows companies to estimate the total cost of employing an individual or completing a project. This information is critical when bidding on contracts, preparing budgets, and setting prices for goods or services.

Compliance with Labor Laws: Employers are required to comply with various labor laws and regulations, including minimum wage laws and payroll tax requirements. Calculating labor burden helps ensure that employers are meeting their legal obligations and avoiding costly penalties or lawsuits.

Fair Compensation: Accurately calculating labor burden helps ensure that employees are fairly compensated for their work. By factoring in additional costs such as payroll taxes and employee benefits, employers can ensure that employees are receiving a fair wage for their work.

Cost Control: Calculating labor burden also helps employers control their labor costs. By understanding the total cost of employing an individual, employers can identify areas where they can reduce costs, such as by adjusting benefits packages or controlling overtime hours.

Overall, calculating labor burden is critical for any company that employs workers. It provides critical information for estimating project costs, complying with labor laws, ensuring fair compensation, and controlling labor costs.

Why an Excel-based Labor Burden Calculator?

Calculating the Actual Cost of labor is essential for every business

While calculating labor burden is essential, it can be a time-consuming and complicated process. Fortunately, an Excel-based Labor Burden Calculator can simplify this process and provide accurate results quickly.

Here are some of the reasons why an Excel-based Labor Burden Calculator is the best tool that exists to help companies determine their actual hourly labor costs:

Customization: Excel-based Labor Burden Calculators can be customized to meet the specific needs of a company. This means that companies can include specific employee benefits, payroll taxes, and other costs that are relevant to their business.

Easy to Use: Excel-based Labor Burden Calculators are easy to use and require minimal training. Simply input the necessary data, and the calculator will do the rest.

Accurate Results: Excel-based Labor Burden Calculators provide accurate results quickly. This is essential when estimating project costs or preparing budgets.

Cost-effective: Excel-based Labor Burden Calculators are a cost-effective solution for calculating labor burden. Unlike expensive software solutions, Excel-based calculators can be created for free using pre-existing templates or by creating a custom calculator that meets the company’s specific needs.

Transparency: Excel-based Labor Burden Calculators provide transparency in the labor cost calculation process. All calculations are visible, and any changes to the data are immediately reflected in the final cost calculation.

Overall, an Excel-based Labor Burden Calculator is the best tool that exists to help companies determine their actual hourly labor costs. It is customizable, easy to use, provides accurate results quickly, cost-effective, and transparent.

Ability to have both taxable and non-taxable employees

One of the best application to calculate your labor burden is the Excel Labor Burden Calculator. You can check out all of the features and learn more here: www.labor-burden-calculator.com

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What is the REAL COST of a Week’s Worth Of Labor?

Employee Labor Burden Costs

“How much should I charge?” I have heard that question more times than I can remember, and my answer is always the same “Let’s start with your costs”

While material costs are usually clear, it is the actual labor costs where we often get it wrong. That is often the problem, and it was also for me too when I was a GC back in 2005.

Let’s take this quiz: Consider this Job – 4 Drywall Tech’s, earning $30.00/hr can complete a new home drywall job in a full week at 40 hours each. What are your actual labor costs for this job?

A) $5200.55

B) $6850.00

C) $7378.20

D) $7507.20

The fact is, before we can calculate the Actual Labor Costs, we need to know much more information on our Actual Employee Costs. In order to do so, let’s make the following assumptions before we can properly determine our costs.

1. Our company is located in California

2. The workman’s compensation Rate 15% (or $15.00 per $100 of Labor Paid)

3. We have a total of 8 Employees and a $3500 monthly company overhead

4. Each Employee Receives 1 Week Paid Holiday & 1 Week Paid Sick Leave

5. Each Employee receives $100 Monthly Fuel Reimb., $1000 Annual Christmas Bonus

6. Monthly Company Costs of $200/month health care costs & $50/month of Meal costs per employee

7. We also must figure in both Employer Paid Portions of the Federal and State Income Tax

In order to calculate the true costs of a job we must first understand our total costs per employee, per year, then we can break them down on an hourly basis.

To save you from complex math, and a headache, the Actual Hourly Costs of each employee, based on the above scenario, and including overhead is actually $46.92

So the Actual Labor Cost of a full weeks job, with 4 Employees at 40 hours for a total of 160 hours is $7507.20

From there you can add in your material costs, then add your markup.

From that point, you have a very accurate job or bid price. If you find that amount out of the job competitiveness, then you have to revisit your labor costs & benefits to see where you can cut.

If you find that you are still under market value, then you know you have room to raise prices, benefits , or markup %.

To help you with the hardest part of the above labor costs calculations I have developed this little tool that automatically calculates the Actual Hourly Cost of Labor for each employee and I would love for you to give it a try and let me know what you think. (this is an Excel application uses safe macros to save all employee data. Just click the “Continue..” button on opening)

Also here is a YouTube video showing you how it works

 

I would love to get your feedback on this.
Randy

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How to Properly Price Out Jobs To Guarantee Profits, Every Time!

Properly Price Out Jobs To Increase Profits

“How much should I charge?” or “How should I price out Jobs?” I have heard those questions more times than I can remember, and my answer is always the same “Let’s start with your costs”
While material costs are usually clear, it is the actual labor costs where we often get it wrong. That is often the problem, and it was also for me too when I was a contractor back in 2005.
Let’s take this quiz: Consider this Job – 4 Roofers, earning $20.00/hr can complete a roofing job in one full week at 40 hours each. What are your actual labor costs for this job?
A) $3200.00
B) $3850.00
C) $4378.20
D) $4908.80

The fact is, before we can calculate the Actual Labor Costs and price out jobs, we need to know much more information on our Actual Employee Costs. In order to do so, let’s make the following assumptions before we can properly determine our costs.
1. Our company is located in California
2. The workman’s compensation Rate 15% (or $15.00 per $100 of Labor Paid)
3. We have a total of 8 Employees and a $1500 monthly company overhead
4. Each Employee Receives 1 Week Paid Holiday & 1 Week Paid Sick Leave
5. Each Employee receives $100 Monthly Fuel Reimb., $1000 Annual Christmas Bonus
6. Monthly Company Costs of $200/month health care costs & $50/month of Meal costs per employee
7. We also must figure in both Employer Paid Portions of the Federal and State Income Tax

In order to calculate the true costs of a job we must first understand or total costs per employee, per year, then we can break them down on an hourly basis.
To save you from complex math, and a headache, the Actual Hourly Costs of each employee, based on the above scenario, and including overhead is actually $30.68
So the Actual Labor Cost of a full weeks job, with 4 Employees at 40 hours for a total of 160 hours is $4908.80

From there you can add in your material costs, then add your markup.
From that point, you have a very accurate job or bid price. If you find that amount out of the job competitiveness, then you have to revisit your labor costs & benefits to see where you can cut.
If you find that you are still under market value, then you know you have room to raise prices, benefits , or markup %.
To help you with the hardest part of the above labor costs calculations I have developed this little tool that automatically calculates the Actual Hourly Cost of Labor for each employee and I would love for you to give it a try and let me know what you think. (this is an Excel application uses safe macros to save all employee data. Just click the “Continue..” button on opening)

Also here is a YouTube video showing you how it works

There is also a Bids & Estimate Add on so that you can properly Price Out Jobs using your Actual Hourly Cost.

More Details on that here: https://www.labor-burden-calculator.com/get-bids-add-today/

I would love to get your feedback on this.
Randy

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What Is My Employee Labor Burden Rate

Calculating the Employee Burden Rate

With 20 Employees, I was quite embarrassed when my accountant asked me what my Employee Labor Burden Rate was, and I not only did not know what my Labor Burden Rate was, let alone how to calculate it.

That was back in 2001, and luckily for me I found out what my Employee Labor Burden Rate was before it was too late and it saved my business.

I learned that the Employee Burden Rate is  the allocation rate at which indirectly company expenses are applied to the direct costs of my employees labor. This became a critical factor when I needed to find out what the actual cost of my Employee’s were really costing me on an hourly basis. The Employee Labor Burden Rate, along with the Total Employee Hourly Burden (or Actual Employee Cost) is simple all of the costs associated with that employee, above and beyond the direct pay of the employee

Download the FREE Labor Burden Calculator Here:

Employee Labor Burden Rate
The Labor Burden Calculator
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Calculating this amount can be a bit tricky without specialized software however we can determine this Labor Burden Rate by determining the total cost of an employee on an annual basis by adding up all of the indirect (non-pay) costs, such as:

  • Employer Paid Taxes
  • Employee Benefits such as:
    • Meal Reimbusements
    • Fuel Reimbursements
    • Cash / Gift Bonuses
    • Company 401k Contributions
    • Heath Insurance Costs
    • Workers Compensation
    • Liability Insurance
  • Paid Time Off such as:
    • Vacation Pay
    • Sick Pay
    • Paid Holidays
    • Paid Training Hours
    • Non-productive hours (this is a big one)
  • Other Insurance Costs
  • Overhead – This must be evenly distributed among all employees based on their actual work hours. (In other words the amount of Overhead distributed between a full time employee is quite different than a part time employee)

To determine the Employee Burden Rate, All of these costs should then be totaled based on an annual basis to get the entire Employee Burden Total. This is the total cost of that employee, excluding the salary amount, for a company.

Next,  to calculate the Employee Burden Rate we must also determine the Actual Hours Worked in an entire year. This is the total hours paid for an employee for a year, minus, the total paid, but non worked hours.

Total Net Employee Hours = Total Annual Paid Hours = Total Annual Paid Non Worked Hours

Now that we have both the Employee Burden Total and the Total Net Employee hours, we can simply divide the amounts to get the Employee Burden Rate

Employee Burden Rate = Employee Burden Total / Total Net Employee Hours

Doing the math can get a bit complicated when dealing with both Overhead and multiple Expense Frequencies. You can actually save tons of time by downloading the the FREE Labor Burden Calculator which does all of the above in just seconds

Feel free to give the FREE Labor Burden Calculator a try here:

Name:
Email:

 

 

 

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How To Calculate Your Employee’s Actual Hourly Cost

Calculate Your Employee Actual Hourly CostWhile it may sound quite insignificant, calculating the Actual Hourly Cost of your employee is one of the most critical functions of a business

Without knowing this cost, it’s impossible for any business to be able to understand their true operating costs, which is an extremely dangerous practice. Determining your Actual Hourly Cost can be a massive headache at times.

In fact, back in 2001, I despised accounting and I didn’t know what Labor Burden was, nor how to generate a Profit & Loss Statement was or a care how to evaluate a Balance Sheet.

Well it turns out that owners and managers today can take full control of their Employee Expenses, without the need to know a single formula or require any spreadsheet experience. I’m going to share this with you today.

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3 Steps On How To Calculate Your Employee Labor Burden

Employee Labor Burden Costs

Here are 3 Easy steps to understanding the critical cost of the Employee Labor Burden

Essentially, Labor Burden is the employee cost to a company beyond the salaries it pays the employee.  This means all of the other costs associated with having employees which is known as the “Labor Burden” or “Employee Labor Burden” for companies. This is extremely important because owners and managers must understand the Total, or Actual, cost of the Employee. Without understanding these actual costs, companies and their owners or managers cannot accurately estimate costs per hour, day or month for budgets and Jobs.

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The REAL Cost of an Employee Smoke Break

Real Cost of an Employee Smoke Break

While I knew hiring an employee who smoked had its costs, I never realized just how much an employee smoke break was costing me until I sat down and added it up one day. I nearly fell off my chair. A total annual cost with just four -10 minute smoke breaks a day was costing me nearly $7,300 USD a year! Here is how I calculated it and you can do the same.

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The 5 Worst Types of Employee Theft and How To Stop Them


Have You Experienced  Employee Theft?

If you are like me and millions of others you have personally witnessed one of the costliest and most devastating issues facing any company today and that’s the blatant theft of a companies assets by its employees. As a former contractor with over 20 employees I myself have fallen victim to each and every one of these at one point or another, and to succeed, I had to overcome all of these challenges. In this article we are going to address 5 of the worst types of employee theft and  how to put systems, software & solutions in place to prevent or stop these thefts before its too late.

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