Fully burdened labor rate

The fully burdened labor rate captures the total cost of employing a person, including salary, benefits, taxes, and additional expenses, offering a comprehensive view of labor costs.

What is fully burdened labor rate?

The fully burdened labor rate is the total cost a company incurs to employ a worker, beyond just their base salary or hourly wage. It includes additional expenses such as benefits, payroll taxes, paid time off, training, travel, equipment, and other overhead costs. These added elements make up the “burden” and provide a more accurate picture of what it truly costs to staff your team.

Get the professional services metrics cheat sheet.

How to calculate your fully burdened labor rate

The fully burdened labor rate is a critical metric for any business—and especially for professional services companies that charge clients hourly or use a blended hourly rate. Why? Because pricing your services based on the true cost of employing your team—including overhead—helps protect your profit margins and ensures sustainable pricing.

This rate offers a more accurate view of what you’re actually spending on labor, which in turn supports better budgeting and financial planning. It helps guide smarter investment decisions and gives finance teams greater visibility into how labor costs scale with headcount.

Here’s a simple formula to calculate fully burdened labor rate:

For example, let’s say you employ a full-time web developer with a base salary of $80,000 and no bonus eligibility. In addition to salary, the developer receives $20,000 in health and dental benefits, a $2,500 annual training allowance, and their share of employer payroll taxes totals $4,500. You also provide them with a laptop and software licenses costing $3,000 annually.

Here’s how you’d calculate the fully burdened labor rate:

Fully burdened labor rate =

• $80,000 (base salary) +
• $20,000 (benefits) +
• $2,500 (training) +
• $4,500 (employer payroll taxes) +
• $3,000 (equipment and software) =
• $110,000 total annual cost

Now, divide that by a standard full-time work year of 2,080 hours (40 hours/week × 52 weeks):

Fully burdened labor rate per hour = $110,000 ÷ 2,080 = $52.88/hour

If you’re billing clients for this person’s time, your hourly rate should be set well above $52.88 to maintain healthy margins and cover additional business overhead.

Note: Employer payroll taxes for full-time team members often include contributions to Medicare, Social Security, workers’ compensation insurance, and federal and state unemployment insurance.

Benchmark across industries

The generally accepted rule is that the fully burdened cost of a team member will be between 25 – 40 percent higher than that person’s salary. And the US Bureau of Labor Statistics reported that benefits for private industry team members increased the fully burdened cost by 42 percent over their salary and wages.

In professional services companies—like consulting firms, marketing agencies, and other service-based businesses—the fully burdened labor rate can vary widely. Factors like industry, geographic location, and employee experience level all play a role. Senior team members or executives, for instance, often receive a large portion of their compensation through bonuses, stock options, and enhanced benefits. As a result, their fully burdened labor rate can exceed three times their base salary, significantly impacting overall labor costs and pricing strategies.

Impact of remote work on fully burdened labor rates

The shift to remote work has significantly reshaped how companies calculate fully burdened labor rates—particularly when it comes to overhead and benefits.

Traditionally, overhead costs included expenses tied to physical office spaces, like rent, utilities, and office supplies. But with remote work, many of these costs are reduced or eliminated. Companies no longer need to maintain large office spaces, and travel expenses are often lower.

At the same time, remote work has led to changes in benefits strategies. There’s growing emphasis on flexible or asynchronous work hours, mental health resources, and home office stipends—replacing more traditional company perks like commuter benefits or business travel allowances.

However, remote work brings new costs to consider. These may include home office setup stipends, cybersecurity investments, and collaboration tools or software licenses. While the nature of the expenses has changed, it’s still essential to account for them accurately in your fully burdened labor rate to ensure your cost projections remain reliable and up to date.

Key takeaways

• The fully burdened labor rate captures the total cost of employing a person, including salary, benefits, taxes, and additional expenses, offering a comprehensive view of labor costs
• Calculating this rate accurately helps businesses maintain healthy profit margins, especially in service industries where pricing is based on labor costs
• Remote work trends influence the fully burdened labor rate by reducing traditional overhead costs while introducing new expenses like home office setups and cybersecurity
• Optimizing this rate involves comparing industry standards, investing in team member development, leveraging technology, and offering flexible work environments to reduce overhead
• Workforce planning software streamlines the management of labor costs by providing real-time data insights and automating crucial financial calculations

Tips to optimize your fully burdened labor rate

Optimizing your fully burdened labor rate can strengthen your company’s financial performance and create a meaningful competitive edge. Here are several strategies to help you get there:

• Benchmark against industry standards: compare your labor rates with peers or competitors to identify areas where you can adjust costs without sacrificing quality or productivity.
• Invest in training and development: boosting skills can improve efficiency, allowing you to spread fixed labor costs over greater output—effectively lowering your labor rate.
• Streamline workflows: evaluate and improve internal processes to reduce the time and effort required to complete tasks, helping lower labor costs over time.
• Use technology and automation: automate repetitive or manual tasks to reduce dependency on labor for routine functions.
• Offer flexible work environments: embracing remote or hybrid work can reduce overhead expenses like rent, utilities, and office maintenance.
• Improve hiring and retention: recruiting the right people—and keeping them—reduces costs related to turnover, onboarding, and lost productivity.
• Evaluate your benefits strategy: regularly review benefits offerings to ensure they’re both valued by team members and cost-effective for the company. Focus on high-impact, relevant perks rather than broad packages that go underused.

There’s no universal formula for reducing fully burdened labor rates—what works best will depend on your company’s size, industry, and team structure. Start by identifying the strategies that align with your goals and build from there.

Get the professional services P&L model template.

Fully burdened labor rate FAQs

How often should companies review and update their fully burdened labor rate calculations?

Companies should review and update their fully burdened labor rate calculations at least once a year. However, more frequent updates are recommended during times of significant change—such as wage increases, changes to benefits packages, or shifts in workforce structure—to ensure accuracy in budgeting, pricing, and planning.

Are there any industry-specific considerations when calculating the fully burdened labor rate?

Yes, industry context plays a big role. Sectors with high overhead costs or complex benefit structures must account for unique expenses. For example, construction companies may need to include equipment depreciation or safety compliance costs, while healthcare organizations might factor in continuing education, licensing, or malpractice insurance. Tailoring calculations to reflect your industry’s true costs ensures better decision-making.

What are the common pitfalls in calculating the fully burdened labor rate?

Several common missteps can lead to inaccurate labor rate calculations. These include overlooking key expenses like overtime pay, onboarding and recruitment costs, or training. Relying on outdated data or applying a one-size-fits-all rate across all roles can also create inconsistencies. To avoid these pitfalls, use current, role-specific data and ensure all relevant costs are factored into your calculations.