A burden rate—also called payroll burden or labor burden—is the amount you pay your employees, including their paycheck and any additional benefits you’re responsible for. These additional costs include insurance, paid time off, remote work stipends, bonuses, or any other expenses.
Knowing your labor burden rate makes you a more informed business owner. Calculating your labor burden in a way you can trust is crucial for understanding your true costs and your business’s profitability. We’ve put together a guide to calculating yours.
What is included in labor burden?
Payroll burden will include any and all expenses you pay to keep your employees—from their paycheck to their benefits. These direct and indirect costs give you a picture of the true cost of your workforce.
Burden rate percentage includes:
- Payroll taxes
- Paid time off
- Retirement benefits
- Health insurance
Why should I know my labor burden rate?
Your employee’s salary alone doesn’t give you the full picture of how much they cost your company. Your labor burden rate helps you be more informed about true employee cost, including fluctuations in health insurance, benefits, and other voluntary expenses.
Knowing this metric helps you make more informed decisions about which benefits you can realistically afford, whether or not you can onboard more employees, and where you can cut costs.
Examining labor burden rates on a global scale can also help you hire abroad. Average labor burden rates vary from country to country, so seeing how yours stacks up to other countries helps you make the decision to look globally or keep your employees closer to home.
Labor taxes across the globe
Payroll taxes vary across the globe—for example, Belgium’s labor taxes are over twice as high as Mexico’s.
According to the OECD, here are how various countries’ labor taxes stack up when combining income tax and social security contributions from both employer and employee:
| How do labor taxes vary across the globe? | |
| U.S. | 30% |
| Japan | 33% |
| Norway | 36% |
| France | 47% |
| Belgium | 53% |
| Australia | 29% |
| Mexico | 20% |
| Turkey | 38% |
| U.K. | 31% |
Information on this page was last updated on June 3, 2024, and is subject to change. Velocity Global makes no representations as to the accuracy or completeness of the information on this page.
How to calculate labor burden rate
To calculate your labor burden rate, divide indirect payroll costs by direct costs. This rate represents additional employment costs you’ll pay beyond your employees’ gross wages. For instance, if an employee earns US$75,000 annually and your labor burden rate is 24%, you’ll pay an additional US$18,000 in insurance, paid leave, and other indirect costs for that employee.
Below, we provide step-by-step instructions for calculating your labor burden rate.
1. Determine the employee’s gross pay
Gross pay is the amount you pay in wages before any deductions like tax, 401K, or insurance rates are taken out. In other words, your employee’s gross pay is just their salary or hourly rate. For hourly employees, you’d calculate gross pay by multiplying the hours your employee works per week by their hourly rate and then the number of weeks they work per year.
2. Calculate the cost of payroll taxes
Next, employers must calculate payroll taxes they are responsible for paying on their employees’ wages. The employee pays their own portion from their wages, and employers foot the bill for the employer percentage.
For example, in the U.S., these payroll taxes are often broken down like this:
- Federal Insurance Contributions Act (FICA). These taxes include Social Security and Medicare.
- Federal Unemployment Tax Act (FUTA). Employers contribute 6% to federal unemployment taxes on the first $7,000 they pay their employees during the calendar year.
- State Unemployment Tax Act (SUTA). This is usually an employer-only tax with a rate that varies from state to state.
Do you want to calculate how much it costs to hire an employee abroad? Use our employee cost calculator below to get reliable insights into employee costs and payroll contributions around the world:
3. Calculate other voluntary payments
Some employers take on additional payments by providing supplemental benefits to their employees. While these may attract quality talent to your organization, they also increase your labor costs.
Some supplemental benefits employers may provide include:
- Additional paid time off
- Additional retirement plan contributions
- Supplemental private health insurance
Add up any benefits you provide as part of your global compensation package and include them in your indirect labor costs.
4. Total the individual percentage
To get your payroll burden rate, use the following formula:
(Indirect employee costs / direct payment costs) x 100
Indirect employee costs are the costs found in steps two and three above—taxes, insurance, and benefits. Direct payroll cost is your employee’s gross wage.
For example, say you pay an employee $60,000 per year. You also pay an additional $8,000 when you factor in taxes, insurance, and benefits. That means you’d divide $8,000 by $60,000 and multiply by 100 to get your payroll burden percentage, which would be 13%.
Best practices for implementation
Regular review and adjustment of labor burden rates is essential for accurate financial planning.
Consider these key points:
- Recalculate rates at least annually
- Account for changes in benefit costs
- Factor in industry-specific requirements
- Consider regional variations in mandatory contributions
This systematic approach to calculating and applying labor burden rates enables businesses to maintain accurate cost projections and make informed decisions about workforce management.
FAQs about labor burden and payroll costs
Understanding labor burden and its impact on business operations raises several common questions. Here are answers to the most frequently asked questions about labor burden rates and employment costs.
What is the difference between labor burden and gross wages?
Gross wages represent the base salary or hourly pay that employees receive before any deductions or withholdings. Labor burden encompasses all additional employment costs beyond these wages, including mandatory contributions, benefits packages, and insurance premiums. This distinction is crucial for understanding the actual cost of maintaining a workforce.
Why is calculating labor burden rate important for global hiring?
Each country has unique employment regulations, tax structures, and mandatory benefit requirements that significantly impact total labor costs. Understanding these variations helps organizations make strategic decisions about workforce distribution and ensures accurate budget forecasting for international operations. This knowledge is essential for companies expanding into new markets or managing global teams.
Does the labor burden include non-monetary benefits?
Labor burden calculations must account for all employment-related expenses, including non-monetary benefits. These benefits often represent significant costs through their cash value equivalents, such as health insurance premiums, retirement contribution matches, and the financial impact of paid leave policies. The inclusion of these elements provides a complete picture of employment costs.
How frequently should labor burden be recalculated?
Organizations should perform labor burden calculations at least annually to maintain accuracy. More frequent updates may be necessary when significant changes occur in benefit programs, insurance rates, or tax regulations. Regular recalculation ensures that budget projections and pricing strategies remain aligned with actual costs.
Can labor burden rates vary within a single country?
Regional variations in labor burden rates commonly occur within individual countries due to local regulations and market conditions. Different jurisdictions often impose varying tax rates, insurance requirements, and mandatory benefits, which create distinct cost structures. These variations can significantly impact the total cost of employment across different locations within the same nation.
Calculate accurate payroll costs
Compliance and accuracy are critical when paying international employees. Partner with Velocity Global to avoid overpayments, fines, and churn as you scale your distributed team.
As part of our employer of record (EOR) solution, we deliver accurate, transparent burden calculations for any market, allowing HR and finance teams to easily budget for expansion while avoiding penalties and hidden costs.
Our team of in-house and regional experts regularly audits, updates, and maintains burdens worldwide, ensuring compliance even as country conditions change. We guarantee accuracy in any industry or market by assessing collective bargaining agreement provisions, occupational risks, employment contract types, ongoing legislation changes, and more.
Let us handle the heavy lifting of calculating labor expenses so you can stay on budget and mitigate risk with ease as you expand. Contact Velocity Global today to get started.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information—and your interpretation of it—is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information is hereby expressly disclaimed. All content is provided “as is,” and Velocity Global makes no representations or warranties concerning this information.
Topic:
Payroll
