Direct wage is only the starting point
The hourly wage or annual salary is the most visible labor cost, but employers may also pay payroll taxes, insurance, benefits, paid leave, equipment, software and management overhead.
Choose a transparent burden method
A simple planning model applies a user-entered burden percentage to direct compensation. A more detailed model lists each annual cost separately and divides total cost by productive hours.
Use productive hours for pricing
Paid hours and productive or billable hours are not always the same. Training, meetings, leave and administration can reduce the hours available to deliver client work.
- Direct compensation
- Employer payroll costs
- Benefits and insurance
- Tools and workspace
- Nonproductive paid time
- Administrative overhead
Refresh assumptions regularly
Burden percentages are business-specific. Review them after benefit changes, insurance renewals, compensation adjustments or major shifts in utilization.