CT1 Logo
    MYCT1.COMOne-up the competition
    Blog & PodcastCash Flow & Money
    Cash Flow & Money

    Understanding Your Real Labor Costs

    If you think your labor cost is whatever you pay your guys per hour, you are underpricing every job. Real labor costs include a lot more than the hourly wage, and most contractors do not account for all of it.

    The Wage Is Just the Beginning

    When you pay a worker $25 an hour, your actual cost is closer to $35 to $40 an hour. On top of the wage, you are paying payroll taxes, workers comp insurance, health benefits, vacation time, and other burden costs.

    This labor burden typically adds 30 to 50 percent on top of the base wage. If you are not including this in your estimates, you are losing money on every job.

    Non-Billable Time Adds Up Fast

    Your crew does not produce billable work every hour they are on the clock. Travel time, material runs, setup, cleanup, training, and waiting for inspections all consume hours that you can not bill to a customer.

    Most crews are productive about 65 to 75 percent of their paid hours. If you estimate labor based on 100 percent productivity, you will always come up short.

    Calculate Your Fully Loaded Labor Rate

    Your fully loaded labor rate includes the base wage, burden costs, and a productivity factor. Here is a simple formula.

    Base wage plus burden divided by productive hours ratio equals your true labor cost per productive hour. For a $25 per hour worker with 40 percent burden and 70 percent productivity, the real cost is about $50 per productive hour. That is double the wage.

    Use Real Data, Not Gut Feelings

    The best way to understand your labor costs is to track them. Log actual hours by job, compare to estimates, and review the data quarterly.

    Over time, you will build accurate labor cost data specific to your business, your crew, and your type of work. This is far more valuable than industry averages or gut feelings.

    CT1

    Platform Solution

    How myCT1 Business-in-a-Box Solves This

    myCT1 helps contractors track labor hours by job so you can compare estimated labor to actual labor on every project. The reporting dashboards show labor cost trends across jobs and project types.

    Build your real labor rates into estimate templates so every bid automatically includes accurate labor costs. QuickBooks integration keeps your payroll data connected to job costing for a complete financial picture.

    Our contractor training platform includes modules on understanding labor burden, calculating loaded rates, and improving crew productivity.

    Explore the Platform

    CRM & Lead ManagementEstimating ToolsJob SchedulingForge AI AutomationCRM for PlumbersCRM for ElectriciansAll TradesView Pricing
    CT1

    Ready to Run Your Business Like a Pro?

    The myCT1 Business-in-a-Box gives you everything you need to manage leads, estimates, jobs, invoices, and more - all in one platform built for contractors.

    Start Free Trial See Pricing

    Frequently Asked Questions

    What is labor burden for contractors?

    Labor burden includes all costs beyond the base wage - payroll taxes, workers comp, health insurance, retirement contributions, and other benefits. It typically adds 30 to 50 percent to the hourly wage.

    How do contractors account for non-billable time?

    Apply a productivity factor to your labor estimates. Most crews are productive 65 to 75 percent of paid hours. Divide your loaded labor rate by the productivity factor to get your true cost per productive hour.

    What is a fully loaded labor rate?

    A fully loaded labor rate includes the base wage, all burden costs, and a productivity adjustment. It represents the true cost of one hour of productive work from an employee.