Figure roughly 30% to 50% more than the wage. A worker you pay $25 an hour really costs you somewhere in the low-to-mid $30s per hour once you add payroll taxes, workers' comp, insurance, and the hours you pay for but do not bill. That gap is called your labor burden, and it is the number one reason a busy contractor can be flat broke. If you bid off the wage instead of the burdened cost, you lose money on every hour your crew works. Here is what is really in that number and how to build it into your price.
The wage is not the cost
When you write a $25 hourly wage on an offer, that $25 is only the part the worker sees. On top of it you carry:
- Your half of Social Security and Medicare (FICA). You match what the employee pays: 6.2% for Social Security plus 1.45% for Medicare, so 7.65% of wages, out of your pocket.
- Federal unemployment tax (FUTA). Effectively about 0.6% on the first $7,000 of wages if you pay your state unemployment on time, roughly $42 per worker for the year.
- State unemployment tax (SUTA). A state payroll tax that varies by state and by your claims history. New construction employers commonly land a few percent of wages, but the rate is state-specific.
- Workers' compensation. The big one, and the most variable. Construction comp is priced per $100 of payroll by trade class code, and it runs from a few dollars to well over twenty dollars per $100 depending on how dangerous the work is and your safety record. Roofing costs several times what finish carpentry costs.
- General liability, spread across your payroll.
- Benefits if you offer them: health insurance, retirement, a phone or truck allowance.
- Paid time you do not bill: holidays, any paid time off, plus the hard reality that nobody bills 40 productive hours out of every 40 they are paid for. Rain, drive time, cleanup, waiting on materials, and slow days all eat into the hours you can actually charge a customer.
- Payroll admin: the software or service that runs it all.
A worked example: a $25-an-hour laborer
Say you hire a laborer at $25 an hour and they work a full 2,000 hours in the year. These are illustrative numbers to show how the stack builds. Your own comp and state taxes will differ.
- Base wages: $25 x 2,000 = $50,000
- Your FICA (7.65%): about $3,825
- FUTA (effective): about $42
- SUTA (illustrative, a few percent): about $400
- Workers' comp (illustrative, general labor): roughly $5,000 to $6,000
- General liability (illustrative share): about $800
Stack just those employer costs on the wage and you are already near $60,000 to $66,000 for the year, before you add any health insurance or retirement. Divide by 2,000 hours and the same $25 worker is costing you about $30 to $34 an hour all-in. Add benefits or a rougher comp class, and the burden climbs toward the top of the 30% to 50% range. On a high-hazard trade like roofing, the comp line alone can push it past 50%.
The billable-hours trap on top
The burden above assumes every paid hour is a billable hour. It is not. If your crew is paid 2,000 hours but you can only bill 1,700 of them (the rest lost to travel, weather, punch-list touch-ups, and downtime), then your real cost has to be recovered across fewer billable hours. A $33 all-in cost spread over billable hours only can quietly become $38 or $40 of cost you need to cover per hour you actually charge. This is why crews stay busy and the owner still cannot make payroll: the bid was built on the wage, not the burdened, billable cost.
What this means for your bids
- Bid the burdened rate, never the wage. Take the wage, add your real burden percentage, then mark that up for overhead and profit. The wage is your floor, not your cost.
- Know your own burden number. Add up a year of the costs above against your actual billable hours and you get your true cost per hour. It is almost always higher than the rule-of-thumb guess.
- Watch the comp class code. Because comp is priced by trade and by claims history, a clean safety record and correct class codes directly lower your burden. Misclassifying a roofer as a lower-rate class to save premium is insurance fraud and will bite you at the annual audit.
Subs are a different math
A genuine independent subcontractor does not carry this burden for you. You pay their invoice and file a 1099, with no payroll tax, no comp, and no benefits on your side. That is real, and it is why subs are used so heavily. But it only holds if the person is truly independent. If you control how they work and treat them like an employee on a 1099, you owe all of that burden anyway, retroactively, plus penalties. See the guide on 1099 versus W-2 before you decide someone is "just a sub."
Common questions
How much more than the wage does an employee cost?
Plan on 30% to 50% on top of the base wage in construction. A $25-an-hour worker typically costs you somewhere in the low-to-mid $30s per hour all-in. The add-ons are your half of Social Security and Medicare (7.65%), federal and state unemployment tax, workers' comp, general liability, any benefits, and the paid hours you cannot bill. Workers' comp is the biggest swing, so a high-hazard trade lands near the top of that range.
What is labor burden?
Labor burden is everything an employee costs you beyond their wage: payroll taxes, workers' comp, general liability, benefits, and the paid time you do not bill to a customer. It typically runs 30% to 50% of the base wage in construction. You bid the burdened rate, not the wage, because charging a customer close to what you pay the worker guarantees you lose money once the burden is counted.
Why is workers' comp such a big part of the cost?
Because construction comp is priced by how dangerous the trade is and by your claims history, and it can run from a few dollars to well over twenty dollars per $100 of payroll. A roofer's comp can cost several times a finish carpenter's for the same wage. It is usually the single largest and most variable piece of labor burden, which is why a clean safety record, correct class codes, and a good experience-mod directly lower your cost. Comp rates vary by state, so see the workers' comp guide and Working in Your State.
Is a subcontractor cheaper than an employee?
A genuine independent sub avoids the employer's payroll taxes, workers' comp, and benefits, so on paper they carry no labor burden for you; you just pay the invoice and file a 1099. But that only works if the person is truly running their own business. If you control how they work and they do your core trade, they are legally an employee, and you owe the full burden plus penalties even though you paid them on a 1099. Get the classification right first.
The honest bit
- The worked example is illustrative, meant to show how the burden stacks up, not to quote your exact cost. Only your own year of costs against your own billable hours gives your true number.
- The federal payroll figures (employer FICA at 7.65%, the $184,500 Social Security wage base, FUTA effective at 0.6% on the first $7,000) are current for 2026. Verify at irs.gov.
- Workers' comp rates and state unemployment tax vary by state, class code, and claims history, and they are the biggest variables here. Route them to the workers' comp guide and Working in Your State.
- This is general guidance, not tax or accounting advice. A bookkeeper who knows construction can nail down your real burden rate, which is one of the most useful numbers in your business.
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