Burden Rate

What goes into a burden rate

There are two versions, and mixing them up causes most pricing errors.

Statutory or payroll burden covers costs that come with wages by law or by insurance requirement:

• Employer FICA: 7.65% on most wages
• Federal unemployment tax (FUTA) and state unemployment tax (SUTA)
• Workers' compensation premiums, priced by job classification code
• Paid sick leave required by state or city law
• Employer contributions to state programs such as paid family leave, where the employer pays a share

Full labor burden adds the costs the employer chooses or must offer beyond that: health insurance and other benefits, retirement match, paid holidays and vacation, training time, uniforms and equipment, and often general liability and employment practices insurance. For a direct employee with full benefits, full burden is commonly 25% to 40% or more of wages. For a temporary worker with minimal benefits, statutory burden usually lands somewhere around 15% to 25%.

Why burden rate matters in staffing

Burden is the first thing that comes out of the spread between bill rate and pay rate. If an agency prices a contract with a 42% markup assuming 16% burden and the real burden is 21%, it has given away five points of gross margin before paying a single recruiter.

The biggest variables are workers' compensation and SUTA. Workers' comp for clerical roles may be well under 1% of payroll, while warehouse, manufacturing and construction class codes can run several percent or much more. SUTA rates vary by state and by the agency's claims history, and the wage base varies from $7,000 to over $70,000. A national agency should price burden by state and by job class, not with a single company-wide percentage.

The front-loading problem

Unemployment taxes are charged on wages up to an annual wage base, so they are front-loaded in the year. FUTA is $42 on the first $7,000 of wages; at $19 an hour, that is used up in about 370 hours. With high turnover, the agency pays the wage base again for every new worker. A program with short assignments and frequent replacements carries a higher effective burden than one where temps stay all year. Price burden as an annual average based on expected tenure, and revisit it when turnover changes.

Using burden rate as an employer

HR and finance teams use the fully burdened cost to compare options: a direct hire, a temp through an agency, a contractor or an outsourced provider. A $20.00 direct hourly employee with 32% full burden costs $26.40 an hour before recruiting and management overhead. An agency bill rate of $28.00 for the same role is closer to the direct cost than it looks on first glance. The comparison should also count recruiting costs, onboarding, management time and turnover for each option.

Common mistakes

• Using one burden percentage for every state and job class.
• Leaving out mandated paid sick leave, which applies to temporary workers in many states and cities.
• Forgetting that overtime hours carry burden too.
• Not updating burden on January 1, when SUTA rates, wage bases and workers' comp rates often change.
• Including benefits in burden for a direct-cost comparison on one side but not the other.