Do You Know Your Loaded Labor Costs?
Jul 12, 2023
If you want to create an accurate rate for your clients (a profitable rate for your clients), you need to know every single cost and every single expense within your company to come up with the correct rate.
One slice of your expense pie (nope...queue up a bourbon chocolate pecan pie for me) are your employee costs. You should know them forwards and backwards. Below is a short guide so you're aware of these expenses when you do your pricing next.
Employee cost:
Gross wages+
Any local or state required pay benefits (e.g. any mandatory paid leave)
=
Total wages
Multiply to those Total Wages...
1.45% (for Medicare) PLUS...
6.2% (for Social Security) PLUS...
0.6% (For federal unemployment ASSUMING you pay and file on time) PLUS...
X% (for state unemployment...your rates will vary. Your state will provide this information for you when you sign up).
The above might easily fall in 10%-15% of Gross wages.
I'll pause here to say that there is a cap on the taxable basis for unemployment insurance. For federal unemployment (FUTA) that cap is $7000 per employee per calendar year. Your state unemployment (SUTA) cap will vary by state. We don't include the cap in our calculations. If you have low turnover, then obviously you may hit that cap and you're saving money. If you have high turnover and/or prefer the PT employee model, you may never hit that cap. So we exclude it in our calculations.
ADD to that....
Your rate for Workers Comp
Your rate for General Liability
Your costs for any umbrella or other policy
Your costs for any training system
Your costs for uniforms, phone for the employee, etc.
Your costs for payroll processing.
Your costs for benefits not already included.
In our pricing, we take the last section in these examples, and we fold these into our overhead costs vs. labor, even though it's labor-related for the most part. I find it easier that way, but certainly you can add it as a labor cost. I've bid on RFPs that require I list some of these out in the labor column. Different strokes for different folks.
I hope the above helps and gives some clarity into loaded labor costs.
