Labor Burden

Definition

Labor burden includes indirect costs such as payroll tax, worker's compensation costs, insurances, vacation, and other benefits. The total indirect cost, calculated as a percentage, of the direct labor costs. An aggregate cost consisting of all indirect labor costs incidental to operations, such as insurance, taxes, and fringe benefits. It is also called indirect labor.

Purpose

The purpose of calculating labor burden is to account for all the indirect costs associated with employing workers, providing a more accurate estimate of total labor expenses. This is crucial for budgeting, pricing, and financial planning in any business, especially in construction and project management.

Examples of Use

• Construction project estimation: When preparing a bid, contractors include labor burden to ensure all labor-related costs are covered.
• Budget planning: Businesses use labor burden calculations to plan their budgets and forecast labor costs accurately.
• Cost analysis: Companies analyze labor burden to identify areas where they can reduce costs or improve efficiency.

Related Terms

• Direct Labor Costs: Wages paid to workers for actual time worked on a project.
• Fringe Benefits: Additional benefits provided to employees, such as health insurance, retirement plans, and paid time off.
• Overhead Costs: General business expenses that are not directly tied to a specific project but are necessary for operation.

Notes

• Labor burden percentages can vary significantly depending on industry, location, and company policies.
• Accurate labor burden calculations are essential for competitive and profitable project bids.
• Regular review of labor burden components is necessary to ensure they reflect current costs and economic conditions.