Labor Cost Calculator (2023)

Labor costs are all fixed or variable expenses related to hiring, training and compensation of employees. They are an important variable when calculating service costs.

Labor costs may include:

•Payroll
•Over time
•Health care and benefits
•Boni
•Vacation and sick days
•Trainingstage
•Versicherung
•Mahlzeiten
•Lieferungen

You can group labor costs bydirect costsAndindirect costs. Direct labor costs are tied to the task at hand—for example, payroll, social security, and benefits for employees working on that particular project. Indirect labor costs accrue to people unrelated to a specific job but nonetheless essential to its success, like your office staff and other support staff.

Here's how to calculate labor costs using a simple formula:

Hourly wage + direct costs + indirect costs + profit amount

With our free wage cost calculator, you can determine hourly, project and even annual wage costs. Here's what you need to plug in for each of these variables:

•Salaryis the combined hourly wage of all employees assigned to the position.
•Direct costsare non-wage labor costs for the workers of the job (e.g. payroll, security, benefits).
•Indirect hourly costsare labor costs for auxiliary staff (salaries and direct costs for clerical and administrative staff).
•win amountis the net amount your business can keep after costs and expenses.

Our labor cost calculator is just one of our free tools to help you estimate, bill and get paid for your work. This calculator is an important part of your project pricing strategy. Bookmark this page and use it for free when calculating labor costs.

Add up your hourly wage, direct costs, indirect costs and desired profit level. Your actual numbers for these variables might look something like this:

• You have two employees who both earn $15/hour. Combine these wages and those of your employeeshourly wageIs$30.
•Payroll and benefits for these two employees cost you approximately $4/hour eachdirect costsat$8/hour.
•Each job requires your supervision and assistance (quoting, scheduling, billing, etc.) at a cost of $18/hour. Add an extra $4 for your payroll and benefits, yoursindirect costsAre$22/hour.
•You work with a profit margin of 15%. If you take that into account, you know yoursdesired profit amountper hour is$9.

Add it, and you can see yoursThe total hourly labor cost is $69. This is just an example of hourly labor cost calculation.

Determine the hourly wage, direct costs, and indirect costs for each employee who will work on the project, and your desired hourly profit. Then multiply each variable by the number of hours each person will work.

Building on our hourly labor cost example above, you know the following:

•Deinhourly wageis a station wagon$30/hourfor the two workers who will do the work. They estimate that the job will take two employees and five hours, for a total of 10 hours of work. That means yoursproject salarywill be$300.
•You pay a combined$8/hourIndirect costs(payroll and benefits) for these workers. Multiplied by 10 working hours you pay$80for thedirect costs of the project.
• You offer supervision and support for $22/hourindirect costs, including your own payroll and benefits. Your role in the project (customer support, team check-ins and invoicing) lasts only one hour, which is the indirect cost of your project$22.
• Stick to your 15% profit margin, add up the salary, direct costs, and indirect costs of your project, then multiply that subtotal by 0.15. This gives you oneproject profitvon$60.

When you add it all up, you have to calculate $462 in labor costs for this project.

(Want to include materials and overhead for a full estimate? Try our freeService Price Calculator.)

You can calculate the annual labor costs per employee or for your entire team. Simply add up your hourly wage, hourly direct cost, hourly indirect cost, and total profit, then multiply by the number of hours worked in a year.

Here is an example of calculating the annual labor cost for a single worker (see the hourly and project labor sections for more details):

• One of your employees earns $15 an hour. They work 40 hours a week, which equates to around 2,000 hours a year (including holidays and sick days). That means hersannual salaryIs30.000 $.
• Payroll and benefits for this employee together cost $4/hour, which equals youdirect costsfor this employee$8,000/year.
•Your indirect costs are $22/hour or $44,000/year. As a business owner, you spend 25% of your time supervising this employee, processing their payroll, and quoting and billing their projects. That means annuallyindirect costsare for this employee11.000 $.

Overall, your employee costs your company49.000 $per year. When you factor in your 15% profit margin, you have to earn at least56.350 $in sales to justify keeping that employee—and staying profitable.

To calculate the annual labor costs for your entire team, simply go through this process for each employee and add up your total costs. You can also customize this formula to calculate weekly or monthly labor costs.

The labor cost percentage is the amount of a company's revenue that is used for the hourly wages, direct costs, and indirect costs of workers. The labor costs are usually approx30% of company expenses. If this percentage is too high or too low, you may need to adjust wages, direct and indirect costs, or service prices.

Let's say your business earns $250,000/year in gross revenue. You have two employees who make a combined income of $60,000/year and incur an additional $42,500 in direct and indirect costs. That means your employees are costing $102,500/year, or 41% of your sales. This is a little high so you could go for itRaise your pricesto increase sales and reduce the percentage of your labor costs.

LowLabor costs can help increase your profit marginhochLabor costs are cut into profits.

A healthy profit margin is typically 10-20% of your job cost or total sales. Use our freeProfit Margin Calculatorto check your margins and keep your business profitable.

An employee costs at least the minimum wage in your area plus a surcharge25–40 %for direct costs such as payroll and benefits. The federal minimum wage in the United States is $7.25/hour, but some states set a higher minimum wage requirement. That means you should expect to spend at least $9/hour for one employee, or $18,125/year - and possibly a lot more. Check out our freeSalary Advisorto understand what employees in your region and industry should be earning.

(Want to reduce labor costs? Go aheadtrack employee hoursto better understand how long an order takes, and then use that information to create more accurate estimates.)