Labor Cost Calculator
Find what an employee really costs, not just the wage. Enter the hourly wage in dollars, hours per week, paid weeks per year, and a burden rate for payroll taxes and benefits — you get the fully burdened annual cost, true cost per hour, and labor as a percentage of revenue.
Example: with Hourly wage ($) 20 · Hours per week 40 · Paid weeks per year 52 · Burden rate (taxes + benefits, %) 25 · Annual revenue (optional, $) 250000 → Annual labor cost: $52,000 per year.
- True cost per hour$25.00 per hour worked
- Gross annual wages$41,600 before burden
- Labor cost % of revenue20.8% of revenue
Computed by the calculator below using its default values. Change any input to see your own numbers.
Labor cost = gross wages × (1 + burden rate). The burden covers employer FICA (7.65%), unemployment insurance, workers' comp, and benefits — typically 25–40% on top of wages.
What an employee actually costs
Wages are only the base. Every US employer also pays 7.65% FICA (the employer share of Social Security and Medicare), federal and state unemployment insurance, and usually workers' compensation — before any health insurance, retirement match, or paid time off. Stacked together, these typically add 25% to 40% on top of gross wages, which is why a common rule of thumb prices an employee at 1.25 to 1.4 times salary.
This calculator applies your burden rate to gross wages to get the true annual cost, then divides by hours to show cost per hour — the number to use when quoting jobs, setting billable rates, or comparing an employee against a contractor.
Labor cost as a share of revenue
Divide fully burdened labor by revenue and you get the labor cost percentage, the metric managers watch weekly in labor-heavy businesses. Full-service restaurants commonly target 25–35% including payroll taxes; retail often runs 15–20%; professional services can sustain more because labor is the product. If the percentage climbs while revenue stays flat, scheduling — not wage rates — is usually the first thing to fix.
How it’s calculated
Gross annual wages = hourly wage × hours per week × paid weeks per year. Annual labor cost = gross wages × (1 + burden rate ÷ 100), where the burden rate covers employer payroll taxes, insurance, and benefits. True cost per hour = annual labor cost ÷ (hours per week × weeks per year). Labor cost percentage = annual labor cost ÷ annual revenue × 100.
Models one employee at straight time — overtime premiums and the gap between paid hours and productive hours (PTO, training, downtime) are not modeled; raise the burden rate or reduce paid weeks to approximate them.
What goes into a burden rate
| Cost | Typical rate on wages | Notes |
|---|---|---|
| Social Security + Medicare (FICA) | 7.65% | Statutory employer share (6.2% + 1.45%) |
| Unemployment (FUTA + SUTA) | 1–4% | Varies by state and claims history |
| Workers' compensation | 1–10% | By trade; office low, roofing high |
| Health, retirement, PTO | 10–25% | Depends on benefits offered |
| Typical total burden | 25–40% | Rule of thumb: 1.25–1.4× wages |
FICA: IRS employer tax rates. Other ranges are typical US employer costs; the BLS Employer Costs for Employee Compensation survey tracks national averages.
Common mistakes
- Quoting jobs off the bare wage — at a 25% burden, a $20/hr employee costs $25/hr before any profit margin.
- Counting 52 paid weeks but only 46 billable weeks — cost per productive hour is higher than cost per paid hour.
- Leaving overtime out: time-and-a-half hours carry the same burden percentage on a bigger wage base.
- Comparing employee cost to a contractor's hourly rate without remembering the contractor pays their own burden.
Frequently asked questions
How do you calculate labor cost?
Labor cost = hourly wage × hours per week × weeks per year × (1 + burden rate). A $20/hr employee at 40 hours, 52 weeks, and a 25% burden costs 20 × 40 × 52 × 1.25 = $52,000 a year, or $25 per hour worked.
What burden rate should I use?
Start at 25% if you offer modest benefits: 7.65% FICA plus unemployment, workers' comp, and some insurance. Rich benefits or high-risk trades push it to 40% or more. The common shorthand is that an employee costs 1.25–1.4× their wages.
What is a good labor cost percentage?
It depends on the model: full-service restaurants commonly aim for 25–35% of revenue, retail 15–20%, and service businesses tolerate more because labor is what they sell. Track your own trend month to month rather than chasing one universal number.
Does this calculator include overtime?
No — it prices straight-time hours. Overtime is paid at 1.5× the wage and carries the same burden percentage, so estimate it by adding the extra hours at 1.5× wage into a separate run.
Why is cost per hour higher than the wage?
Because every hour must absorb payroll taxes, insurance, and benefits paid on top of wages. That gap is the burden: at 25%, each $20 wage-hour really costs $25 — the honest basis for bids and billable rates.