It's very common for business owners to think that their labor costs only include the wage they pay their employees. While this is logical, it's technically not true — and they learn a difficult truth the hard way: "Labor burden is killing more HVAC margins than they think."
What Is Labor Burden?
Labor burden is the employee wage combined with every benefit and tax associated with it. The full burden rate is the wage plus extras to get the employee to a job site — vehicle fuel, lodging, and similar costs.
Additional Costs
1. Payroll Taxes
Generally, business owners can expect to pay 10–15% of employee wages in payroll taxes. These percentages vary, but it's a useful estimate.
2. Workers Compensation
Per Wexford Insurance, workers comp runs about $0.75–$2.50 per $100 of payroll for smaller HVAC businesses, and $2.50–$5.00 for larger ones. These are estimates, not legal or tax advice.
3. Benefits / PTO
PTO is hourly and can't be billed to customers. Benefits are calculated off employee wages — owners can expect to spend around 5–10% on employee benefits.
How Does Payroll Burden Affect Cashflow?
Determining payroll burden is one of the factors that informs what to charge customers. If labor costs aren't factored into pricing, the business loses money on every job — no matter how many customers it gets.
Conclusion
Labor includes more than the wages of your employees. There are a number of other factors to consider, and if they're not included in the labor burden, the business can be in financial danger.
Disclaimer: The information in this post is intended for general guidance purposes. For advice specific to your business finances or taxes, consult a licensed accountant or financial advisor.
