What Is Loaded Labor Cost? Formula, Example, and Calculator

Fully loaded labor cost is what one productive hour of an employee actually costs your business. Take every employer cost for the year — wage, payroll taxes, workers' compensation, benefits, and labor-related overhead — and divide it by the hours that person is genuinely productive, not the hours you pay for. It is almost always far higher than the wage.

Fully Loaded Hourly Cost = Total Annual Employment Cost ÷ Productive Hours

Run your own numbers in the Loaded Labor Cost Calculator, or work through the math below first.

The two things that separate wage from cost

Every dollar between the paycheck and the true cost comes from one of two places.

1. Burden — what you pay on top of the wage. Employer payroll taxes, workers' compensation, employer-paid benefits, and labor-related overhead like a truck, fuel, tools, and a phone. The employer share of FICA alone is 7.65% of wages (6.2% Social Security plus 1.45% Medicare) before unemployment taxes, workers' compensation, or any benefit — see the IRS Employer's Tax Guide, Publication 15. Workers' compensation rates vary enormously by state and class code, which is why no single national burden number is trustworthy.

2. Utilization — the hours you pay for but cannot bill. PTO, holidays, training, meetings, shop time, drive time, and slow days are all paid. None of them can be invoiced. Every non-billable hour has to be carried by the hours that are billable, which raises the cost of each one.

Owners usually account for the first and forget the second. The second is often the larger multiplier.

Definitions: four numbers people use interchangeably

Term	What it means	Typical relationship
Wage	What the employee is paid per hour	The starting number
Burdened cost	Wage plus employer taxes, insurance, and benefits	Wage + burden %
Fully loaded cost	Burdened annual cost spread over productive hours only	Higher than burdened
Billable rate	What you charge the customer	Loaded cost ÷ (1 − target margin)

Confusing burdened cost with loaded cost is the most common estimating error in the trades. Burdened cost tells you what the person costs per paid hour. Loaded cost tells you what they cost per hour you can actually sell — which is the only one that belongs in a price.

Worked example

A service technician paid $30/hour, 2,000 paid hours a year. These figures are illustrative, chosen to show the mechanics — they are not benchmark data.

Line	Calculation	Amount
Base wage	$30 × 2,000 hrs	$60,000
Payroll taxes + workers' comp	15% of wage	$9,000
Benefits (employer share)	health + retirement	$6,000
Total annual employment cost		$75,000
Non-productive hours	PTO 200 + holidays 100 + training 200	500 hrs
Productive hours	2,000 − 500	1,500 hrs
Fully loaded hourly cost	$75,000 ÷ 1,500	$50.00/hr

The wage was $30. The cost is $50 — 1.67× the wage, and not a dollar of profit yet.

The shortcut formula, and when it breaks

You will also see loaded cost written as a shortcut:

Loaded Cost = Base Wage × (1 + Burden %) ÷ Utilization %

That produces the same answer when burden is expressed as a percentage of wage and utilization as a share of paid hours. It is quick and fine for a mental check. It breaks when a real cost is a fixed dollar amount rather than a percentage — health insurance, a truck payment, a phone plan, tool allowances. Those do not scale with the wage, so folding them into a burden percentage distorts the number, and the distortion grows as wages differ across a crew. The annual-cost method handles them correctly, which is why the calculator uses it.

Margin is not markup

Once you know cost, price it deliberately:

Minimum Billable Rate = Loaded Cost ÷ (1 − Target Margin %)

A 50% margin on a $50 loaded cost is a $100 rate, because margin is a share of the price. A 50% markup on the same cost is $75, because markup is a share of the cost — that is a 33% margin, not 50%. Contractors who apply a markup while thinking in margin underprice every hour they sell, permanently.

When to recalculate

• After any wage change, raise, or new hire.
• At renewal for health insurance or workers' compensation.
• When your payroll provider updates unemployment tax rates.
• When utilization shifts — a seasonal slowdown, a new service line, or a change in drive time.
• At minimum, once a year alongside your rate review.

Common mistakes

• Pricing off the wage. The most expensive habit in the trades.
• Adding burden but ignoring utilization. Gets you partway, still leaves you short.
• Treating fixed-dollar costs as a percentage of wage. Distorts the cost across a crew with different pay rates.
• Using someone else's burden percentage. Workers' comp class codes and state unemployment rates make national figures unreliable for any individual shop.
• Dividing by paid hours instead of productive hours. This is the difference between burdened and loaded cost.
• Confusing margin with markup. Costs a third of the intended margin on every job.

FAQ

What is the fully loaded cost of an employee?

It is the total of everything the employee costs over a year — wage, employer payroll taxes, workers' compensation, benefits, and labor-related overhead — expressed per productive hour. Divide the annual total by the hours the person can actually be billed out, not by the hours you pay for.

How do you calculate a fully burdened labor rate?

Add employer payroll taxes, workers' compensation, and benefits to the base wage to get the burdened annual cost, then divide by paid hours for the burdened hourly rate. To get the more useful loaded rate, divide by productive hours instead. Both are costs, not prices.

What is a good labor burden percentage for contractors?

There is no reliable universal figure, and any source quoting one is generalizing past real differences in state unemployment rates, workers' compensation class codes, and benefit packages. Pull your actual rates from your payroll provider and your workers' compensation declarations page and calculate your own.

Should overhead be included in loaded labor cost?

Include overhead that follows the person — truck, fuel, tools, phone, uniforms. Keep general business overhead such as office rent, office staff, and marketing out of it; that belongs below the gross margin line and is covered by the margin you add on top of loaded cost, not by the cost itself.

How many productive hours does a technician actually have?

It depends on your PTO policy, holiday schedule, training load, and how much drive and shop time your dispatch model creates. Rather than borrowing a number, subtract your own non-billable hours from your paid hours — that subtraction is the point of the exercise. Utilization is worth tracking on its own; see technician billable utilization rate.

Methodology and sources

The employer FICA rate cited above (6.2% Social Security + 1.45% Medicare = 7.65%) is from the IRS Employer's Tax Guide, Publication 15; the Social Security wage base and unemployment tax rates change annually, so verify current figures with the IRS and your state agency. Every other number in this article is either a formula, a clearly labeled illustrative example, or Margin One operating guidance drawn from running and coaching home-services businesses. No industry survey, proprietary dataset, or benchmark study underlies these figures, and none is implied. For the target ranges Margin One scores businesses against, see the KPI operating thresholds — labeled there as operating thresholds, not industry averages.

Next steps

Calculate your own number in the Loaded Labor Cost Calculator. Apply it to a specific job with the Job-Costing Calculator. If the margin still is not showing up in the bank account, the Margin Leak Check walks the other places it escapes. Once labor cost is right, what markup contractors should use turns cost into price, and M1COS financial intelligence tracks it continuously instead of once a year.

Last reviewed 15 August 2026.