Margin One
What Is Loaded Labor Cost, and How Do You Calculate It?
The wage on the paycheck is not what a technician costs you; loaded labor cost adds burden and divides by utilization, often doubling the number.
By Danielle
Loaded labor cost = base wage × (1 + payroll burden %) ÷ billable utilization %. Burden is typically 25 to 35 percent and billable utilization typically 55 to 65 percent. A tech paid $35/hr at 30 percent burden and 60 percent utilization costs about $76 per BILLABLE hour, not $35. This formula comes from the Home Services Metrics Scorecard that M1COS dashboards run on.
Loaded labor cost is what a technician actually costs you per billable hour, not the wage on the paycheck. The formula:
Loaded Labor Cost = Base Wage × (1 + Payroll Burden %) ÷ Billable Utilization %
Two numbers turn the wage into the real cost. Payroll burden is everything you pay on top of the wage: payroll tax, workers' comp, benefits, and PTO. It is typically 25 to 35 percent. Billable utilization is the share of paid hours that are actually billable to a customer, after drive time, shop time, training, and slow days. It is typically 55 to 65 percent.
Here is the worked example. Take a tech paid $35/hr, at 30 percent burden and 60 percent utilization:
$35 × 1.30 = $45.50 per paid hour
$45.50 ÷ 0.60 = ~$76 per billable hour
That tech costs you about $76 per billable hour, not $35. If you price labor anywhere near the wage, you lose money on every hour and never see it, because the loss hides inside cost of goods sold.
| Step | Value |
|---|---|
| Base wage | $35.00 |
| After 30% burden | $45.50 |
| After 60% utilization | ~$76.00 |
The burden step is the one most owners at least gesture at. The utilization step is the one almost everyone forgets, and it is the bigger multiplier. You pay for eight hours; you can only bill for five or six. The hours you cannot bill still have to be paid for by the hours you can. That is why low utilization quietly inflates the cost of every billable hour.
The common mistake: quoting off the wage, or off wage-plus-burden but skipping utilization. Both leave you underpriced. Run your own techs through the formula before you set a single labor rate.
This formula comes from the Home Services Metrics Scorecard, the KPI catalog the M1COS dashboards run on.
Plug your own wages, burden, and utilization into the Job-Costing Calculator to see loaded cost per job. Utilization is a benchmark of its own worth knowing; see What Is a Healthy Technician Billable Utilization Rate?. And once you have true cost, What Markup Should Contractors Use? turns it into price.
FAQ
What is payroll burden?
Everything you pay on top of the base wage: payroll taxes, workers' comp, benefits, and PTO. It typically adds 25 to 35 percent to the hourly wage.
Why divide by utilization?
Because you pay for every hour but can only bill for some of them. Dividing by billable utilization spreads the cost of unbillable hours across the ones you can actually charge for.
What if my utilization is higher than 65 percent?
Better for you: your loaded cost drops. Recalculate with your real number. The formula holds; only the inputs change.
Want these numbers on your actual books? Book a call.