How to Calculate Labor Costs for Contractors (2026 Formula)

The most expensive mistake in contractor estimating is calculating labor cost as just the worker's hourly rate. The real cost is 1.5–2× that number when you include burden, overhead, and profit. Here's the exact calculation.

The fully-loaded labor cost formula

Fully-loaded cost = (Wage × Burden multiplier) + Overhead per hour

Step 1: Calculate labor burden

Burden = taxes and mandated costs on top of the base wage:

• FICA (Social Security + Medicare): 7.65%
• Federal unemployment (FUTA): ~0.6%
• State unemployment (SUTA): 1–5% depending on state and claims history
• Workers' compensation: 2–20% depending on trade and claims (roofing is highest)
• General liability allocated to labor: 1–3%
• Paid time off, if you provide it: 5–10%

Total burden typically runs 25–45% on top of base wage. Use 35% as a starting point if you haven't calculated yours.

Step 2: Calculate overhead per billable hour

Overhead = every business cost that isn't direct to a job:

• Vehicle: payment, insurance, fuel, maintenance
• Tools: purchase, repair, replacement
• Insurance (general liability, umbrella)
• Office/admin: software, phone, bookkeeping
• Your own time when not on a job: estimating, quoting, admin

Add all these up annually. Divide by your annual billable hours (typically 1,600–1,900 for a one-man crew). That's your overhead per billable hour.

Worked example

• Worker wage: $35/hour
• Burden at 35%: $35 × 1.35 = $47.25/hour burdened cost
• Annual overhead: $60,000 ÷ 1,800 billable hours = $33.33/hour overhead
• Fully-loaded cost: $47.25 + $33.33 = $80.58/hour
• Target margin 45%: sell rate = $80.58 ÷ (1 – 0.45) = $146.51/hour

If you're charging $100/hour, you're losing money at this overhead level.

Production rates matter as much as hourly cost

Labor cost per sqft = (hourly cost ÷ production rate). A $100/hour painter who covers 200 sqft/hour costs $0.50/sqft. A $80/hour painter who covers 100 sqft/hour costs $0.80/sqft. Speed matters — measure it per trade and use those rates in your estimates.

The ConstruMate calculator has production rates and labor cost built in for 41 trades — so your labor pricing is accurate on every estimate.

Start estimating with accurate labor costs →