Labor burden is what a contractor pays for an hour of labor beyond the base wage. It covers payroll taxes, workers’ compensation, health insurance, retirement contributions and paid time off. The estimator uses it to price labor in a bid, and the project accountant uses it to bill time-and-material and force account work.
Many payroll and estimating systems store burden as one percentage of wages paid. Total cost divided by hours worked gives a higher hourly figure, because paid holidays and vacation are wages with no hours on the job. This post builds both from one worker’s year and compares the result with Bureau of Labor Statistics (BLS) figures for the construction industry.
What goes into burden
Public owners define the statutory part when they pay for extra work. The Caltrans Labor Surcharge and Equipment Rental Rates book in effect from September 1, 2026 through March 31, 2027 lists six statutory payroll items in its labor surcharge: workers’ compensation, Social Security, Medicare, federal unemployment insurance, state unemployment insurance and state training taxes. Caltrans applies the surcharge to actual wages paid on force account work.
The general Caltrans rate is 10 percent for regular time and 10 percent for overtime. Trades with high workers’ compensation costs get higher rates, up to 16 percent for regular time on sign erection or repair.
The federal rates come from the IRS. The employer pays 6.2% for Social Security on wages up to $184,500 in 2026, and 1.45% for Medicare with no wage limit. The federal unemployment tax, FUTA, is 6.0% of the first $7,000 of each employee’s wages. An employer that pays its state unemployment tax in full and on time can usually take a credit of up to 5.4%, which leaves 0.6%.
State unemployment rates and wage bases vary by state and by employer. Workers’ compensation premium is priced against payroll by class code and then multiplied by the experience mod, which the experience mod post walks through. The rest of burden comes from the firm’s own plans, such as health insurance, retirement contributions, paid holidays and vacation.
Two denominators
The calculation takes one craft and one calendar year of payroll:
- Add up the year’s burden for the craft without paid leave. That is the employer payroll taxes, workers’ compensation, health insurance and retirement.
- Divide that sum by wages paid, including paid leave. This is the burden percentage most payroll systems store.
- Add wages paid and burden to get the total annual cost.
- Divide total cost by hours worked, which is hours paid minus holidays, vacation and paid sick time. The result is the cost of one hour on a timecard.
BLS uses the second denominator. Its Employer Costs for Employee Compensation (ECEC) survey reports costs per hour worked, and it counts paid leave as a benefit. The other benefit categories are supplemental pay, such as overtime premiums and shift differentials, along with insurance, retirement and savings, and legally required benefits.
A worked example
The figures below are an example with round numbers. A carpenter earns $50.00 an hour and is paid for 2,080 hours, or $104,000 for the year. That includes 160 hours of paid holidays and vacation, so the carpenter works 1,920 hours. The federal tax rates are the IRS rates above. The state unemployment rate, the workers’ compensation rate, the health premium and the retirement match are example values.
| Item | Basis | Annual cost | Per hour worked ($) |
|---|---|---|---|
| Wages for hours worked | 1,920 hours at $50.00 | $96,000 | 50.00 |
| Paid holidays and vacation | 160 hours at $50.00 | $8,000 | 4.17 |
| Social Security | 6.2% of wages paid | $6,448 | 3.36 |
| Medicare | 1.45% of wages paid | $1,508 | 0.79 |
| Federal unemployment (FUTA) | 0.6% of the first $7,000 | $42 | 0.02 |
| State unemployment | 3.0% of the first $10,000 (example) | $300 | 0.16 |
| Workers' compensation | $5.00 per $100 of payroll (example) | $5,200 | 2.71 |
| Health insurance | $1,200 a month (example) | $14,400 | 7.50 |
| Retirement | 4% of wages paid (example) | $4,160 | 2.17 |
| Total cost | $136,058 | 70.86 |
Burden without paid leave comes to $32,058, or 30.8% of wages paid. Applied to the $50.00 wage the usual way, that rate gives $65.41 an hour. Dividing the full $136,058 by the 1,920 hours worked gives $70.86.
An estimate priced at $65.41 for 1,920 hours comes to $125,592, which is $10,466 short of the carpenter’s annual cost. That amount equals the $8,000 of paid leave plus the 30.8% burden on it.
Two payroll details change the rate during the year. At $50.00 an hour, the carpenter reaches the $7,000 FUTA wage base after 140 paid hours, in the fourth week of January for a worker on payroll from January 1. A burden rate computed from the first quarter alone runs high, so use a full year. On overtime, Caltrans leaves workers’ compensation off the premium portion in its surcharge, citing workers’ compensation regulations. Social Security and Medicare apply to all covered wages.
Comparing with BLS
The ECEC release for June 2026, published September 9, 2026, puts total compensation for private construction industry employers at $51.96 per hour worked. Wages and salaries were $36.13 and benefits were $15.84, or 30.5% of compensation.
| Category | Example per hour worked ($) | Example share (%) | BLS construction industry per hour worked ($) | BLS share (%) |
|---|---|---|---|---|
| Wages and salaries | 50.00 | 70.6 | 36.13 | 69.5 |
| Paid leave | 4.17 | 5.9 | 2.63 | 5.1 |
| Supplemental pay | 0.00 | 0.0 | 2.49 | 4.8 |
| Insurance | 7.50 | 10.6 | 3.90 | 7.5 |
| Retirement and savings | 2.17 | 3.1 | 2.39 | 4.6 |
| Legally required benefits | 7.03 | 9.9 | 4.42 | 8.5 |
| Total compensation | 70.86 | 100.0 | 51.96 | 100.0 |
Benefits are 29.4% of the example’s cost, close to the industry’s 30.5%, while the categories differ. Insurance is 10.6% of the example’s cost and 7.5% of the BLS figure. BLS includes every worker in its benefit averages, including workers without access to a plan and workers who do not enroll, so an industry average for health insurance falls below the cost of one covered worker. The example has no supplemental pay, which is 4.8% of construction compensation in the BLS table.
Legally required benefits are 9.9% of the example’s cost and 8.5% for the industry. Against wages paid, the example’s statutory items come to 13.0%, above the 10 percent Caltrans general rate. Social Security and Medicare account for 7.65 points of each. Workers’ compensation is 5.0 of the example’s remaining 5.3 points, so the workers’ compensation rate decides most of the difference.
The BLS construction industry figure covers every occupation at construction firms, office staff and managers included. The same table reports construction, extraction, farming, fishing and forestry occupations in goods-producing industries at $47.56 an hour, with benefits at 31.2%. For a field craft, that row is the closer comparison.
Revisions and caveats
ECEC data come from a probability sample of about 6,600 private industry establishments, and BLS publishes relative standard errors for its estimates. The September 2026 figures are scheduled for December 16, 2026.
Starting with December 2026 data, released in March 2027, ECEC will drop workers’ compensation costs. BLS says workers’ compensation has a lower item response rate than other benefits and makes up about 1 percent of total compensation. From that release on, remove workers’ compensation from your own cost before comparing.
How to start on your jobs
Pick one craft and pull last calendar year’s payroll register for it: gross wages, hours paid, hours of paid leave, and each employer tax and benefit line. Compute burden as a percent of wages paid and as total cost per hour worked. When the estimating database holds the first number, the hourly labor cost in the bid leaves out the cost of paid leave.
Multiply the cost per hour worked by the labor hours per unit from the labor productivity post to get labor cost per unit installed. Recompute both numbers when the Social Security wage base changes for a new year and when the workers’ compensation policy renews.