Labor burden is the employer cost associated with employee labor beyond base wages, as defined by a firm's costing method.
Definition
Labor burden captures employer costs tied to having employees perform work beyond their base wages. A firm may include payroll taxes, health and retirement benefits, workers compensation, paid leave, or other costs, depending on its accounting policy. Some firms apply a burden rate to direct wages for project costing or pricing. Others allocate selected costs through overhead, so the same item should not be counted twice. The calculation may use actual employee costs, a firmwide average, or separate rates for employee groups, and these approaches can produce different project costs. Owners use a stated, consistently applied method to understand the full labor cost behind project work and to build rates. Labor burden is not an employee's take-home pay or total compensation statement. It also does not mean all labor-related expense belongs in the burden calculation; how the firm classifies costs determines what the rate represents.
How owners use it
- Review which employer costs are included before comparing burden rates across teams or periods.
- Include the defined burden in project costing or billing-rate calculations.
- For example, $30,000 of included costs ÷ $100,000 of wages = 30% labor burden.
- Check that benefits or payroll costs are not also charged through overhead.
