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
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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: