Employee True Cost Calculator

What an Employee Really Costs You

You pay your worker $25 an hour. That is what they see on the paycheck. But your actual cost to have that person show up, do the work, and drive your truck? It is $45 to $60 per hour. Sometimes more.

The gap between what you pay and what it costs you is called labor burden. It includes every dollar you spend on that employee beyond their base wage: payroll taxes, workers comp, health insurance, PTO, the company truck, tools, uniforms, training, and a phone.

Most trade business owners know the gap exists. But most guess at it. They use a "1.3x multiplier" they heard somewhere and call it close enough. It is not close enough. A 1.3x multiplier on $25/hr gives you $32.50. The real number is closer to $50 to $60. That means you are underpricing every job by $17 to $27 per labor hour. On a 3-person crew working a full day, that is $400 to $650 in costs you did not price for.

The True Cost Formula

Start with the annual gross pay. A worker at $25/hr working 40 hours a week for 52 weeks earns $52,000 per year. Now add everything on top.

Mandatory Employer Costs

These costs are required by law. You cannot avoid them. They apply to every dollar of wages you pay.

Employer FICA (7.65%). This covers Social Security at 6.2% and Medicare at 1.45%. On $52,000 in wages, that is $3,978 per year. Every employer pays this. No exceptions.

Federal Unemployment Tax, FUTA (0.6%). The headline rate is 6.0% on the first $7,000 per employee, but you get a credit for paying state unemployment. The effective rate is about 0.6%. That is $42 per employee per year. Small, but it is still money out the door.

State Unemployment Tax, SUTA (2% to 5%). This varies by state and your claims history. New employers usually start at 2.7%. If you lay people off or have high turnover, your rate goes up. On $52,000 in wages, SUTA costs $1,040 to $2,600 per year.

Workers Comp Insurance (3% to 8%). This is the big variable. Rates depend on your trade, state, and claims history. Office work runs under 1%. Cleaning runs 2.5% to 4.5%. Plumbing and electrical run 3% to 6%. HVAC runs 4% to 7%. Roofing runs 6% to 9%. On $52,000 in wages with a 5% rate, that is $2,600 per year.

Add those up. On a $25/hr worker, mandatory costs alone add $3.70 to $5.50 per hour. That is $7,660 to $11,420 per year. Your $25/hr worker already costs $28.70 to $30.50 before you offer a single benefit.

Optional Benefits (That Are Not Optional If You Want Good People)

You do not have to offer benefits. But if you want to hire and keep skilled trade workers in this market, you probably do. Here is what each one costs.

Health Insurance ($500 to $700/month). The employer share of an individual plan averages $500 to $700 per month. Family plans run $1,200 to $1,800. At $600/month, that is $7,200 per year, or $3.46/hr.

Paid Time Off (4% to 6% of wages). Two weeks of PTO on a $25/hr worker costs $2,000/yr. Three weeks costs $3,000. The percentage is 3.8% for 10 days, 5.8% for 15 days. Your worker is not on the job during PTO, but you are still paying them. That is $2,000 to $3,000 per year.

401(k) Match (3% to 4% of wages). A 3% match on $52,000 costs $1,560/yr. A 4% match costs $2,080. Not every trade business offers this, but more do now because of competition for workers.

Company Truck ($800 to $1,200/month). This covers the payment or lease, insurance, fuel, and maintenance. A service van costs $700 to $1,000/month. A fully equipped truck costs $900 to $1,200. At $900/month, that is $10,800 per year, or $5.19/hr. This is often the second biggest cost after wages.

Tools and Equipment ($150 to $400/month). Power tools, hand tools, test equipment, and replacements. HVAC and electrical contractors spend more here. At $200/month, that is $2,400 per year, or $1.15/hr.

Phone ($50 to $100/month). The device, plan, and field apps. At $75/month, that is $900 per year.

Uniforms ($30 to $75/month). Branded shirts, pants, PPE, and replacements. At $50/month, that is $600 per year.

The Real Number

Let us add it all up for a $25/hr worker with health insurance, PTO, a truck, and tools.

That is $40.48 per paid hour. But we are not done. Because your worker is not productive for all 2,080 paid hours.

The Productivity Gap: Paid Hours vs. Productive Hours

This is where most owners get the math wrong. You pay for 2,080 hours per year (40 hours times 52 weeks). But your worker is not doing billable work for all of those hours.

Where does the time go?

• Drive time. 30 to 60 minutes between jobs. On 4 calls per day, that is 2 to 4 hours of driving.
• Parts runs. Every trip to the supply house burns 45 to 90 minutes.
• Paperwork. Invoicing, notes, photos, and time tracking. 20 to 40 minutes per day.
• Morning meetings. Dispatch, truck loading, schedule review. 15 to 30 minutes per day.
• Training days. Manufacturer training, safety meetings, code updates. 40 to 80 hours per year.
• PTO and sick days. 10 to 20 days per year where you pay full cost and get zero production.
• Downtime between calls. Scheduling gaps, cancellations, no-shows.

For most trade workers, productive hours run 55% to 70% of paid hours. That means 1,150 to 1,450 productive hours per year out of 2,080 paid hours.

If your total annual cost is $84,194 and your worker produces 1,300 productive hours, your cost per productive hour is:

That $25/hr worker costs you $64.76 per productive hour. Not $25. Not $32. Not even $40. Almost $65. If your billing rate does not cover that number plus overhead plus profit, you are losing money on every job.

How to Find Your Actual Numbers

The defaults in this calculator are national averages. Your numbers will be different. Here is where to find them.

• FICA rate: Always 7.65% for the employer share. This does not change.
• State unemployment rate: Check your state workforce agency website or your quarterly payroll tax filing. Your rate is on the form.
• Workers comp rate: Look at your workers comp insurance policy. The rate is listed as a percentage per $100 of payroll. Divide by 100 to get the percentage for this calculator.
• Health insurance cost: Ask your insurance broker or HR person for the employer share of the monthly premium per employee.
• Truck cost: Add up your monthly payment (or lease), insurance, average fuel cost, and average maintenance cost per vehicle.
• Tools budget: Look at your last 12 months of tool and equipment purchases. Divide by 12 and by the number of employees who use them.

Your payroll provider can give you a breakdown of employer-paid taxes per employee. If you use a PEO, they have this on a dashboard. If you do payroll manually, your accountant has these numbers at tax time.

Common Mistakes Contractors Make

Using the wage rate in job estimates. If you bid a job assuming your labor costs $25/hr, you are wrong by $15 to $40 per hour per worker. On a 2-person crew working 6 hours, that is $180 to $480 in costs you did not account for. That comes straight out of your profit.

Ignoring the productivity gap. Paying for 8 hours but only billing for 5.5 means your cost per billable hour is 45% higher than your cost per paid hour. If you set your billing rate based on paid hours, you leave money on the table every day.

Using a flat 1.3x multiplier. The old "multiply by 1.3" rule understates the real burden by 30% to 50% for most trade workers. It does not account for trucks, tools, or the productivity gap. Use 1.8x to 2.2x as a starting point. Then plug in your real numbers.

Not tracking burden by employee. Your senior tech with a $1,200/month truck, health insurance, and 3 weeks PTO costs a lot more per hour than your helper with no benefits and a personal vehicle. Using a company-wide average hides the real cost of each worker.

Forgetting about turnover. Hiring a new employee costs $3,000 to $8,000 in recruiting, onboarding, and lost productivity during training. If your turnover rate is 30% per year, add $900 to $2,400 per employee per year in turnover cost.

How True Cost Affects Job Pricing

Once you know your true cost per productive hour, job pricing gets simple.

Example: Your true cost per productive hour is $65. Your overhead allocation is $20/hr. You want a 20% margin.

If you had used the wage rate ($25/hr) instead of the true cost ($65/hr), you would have calculated a billing rate of $56.25. That is a $50 per hour mistake. On a 2-person, 6-hour job, you would underprice by $600.

This is why knowing your true employee cost is not optional. It is the foundation of every price, every bid, and every profit calculation in your business.