Guide
How to price labor for construction jobs
Labor is where most construction estimates fail. The correct price for labor is not the wage — it is the wage plus burden rate, adjusted for productivity, plus overhead. Skipping any of these layers guarantees underpricing.
The three layers of labor cost
Layer 1: Burden rate
Base wage + FICA + FUTA/SUTA + workers comp + GL insurance. This is the true cost per hour worked.
Layer 2: Productivity factor
Not all hours on a job are productive billable hours. Travel time, setup, cleanup, and rework reduce effective productivity.
Layer 3: Overhead allocation
Your fixed monthly costs allocated per labor hour. Every hour must recover a portion of overhead or the job does not cover your costs.
The complete labor pricing formula
Effective labor rate = (Burden rate × Hours required) ÷ Productivity factor
Then add overhead: + (Overhead rate × actual hours on site)
Final price: Total labor cost ÷ (1 − Target margin)
Productivity factors by task type
Productivity factor = percentage of time on site that is directly billable production work.
| Task type | Typical productivity | Time lost to |
|---|---|---|
| Repetitive production (roofing, framing) | 75–85% | Setup, material staging, breaks |
| Rough-in (plumbing, electrical) | 65–75% | Measuring, layout, coordination |
| Finish work (tile, trim, paint) | 60–70% | Precision, cleanup, touch-up |
| Service calls (HVAC, plumbing) | 55–65% | Diagnostics, travel, parts sourcing |
| Landscaping install | 70–80% | Material delivery, equipment positioning |
| Concrete / flatwork | 75–85% | Form setup and breakdown |
Worked example: bathroom tile installation
Scope: 200 sq ft floor tile, estimated 16 production hours
Tile setter wage: $32/hr
Burden rate: 26% → true cost: $40.32/hr
Productivity factor: 65% → effective hours: 16 ÷ 0.65 = 24.6 hrs on site
Labor cost: 24.6 × $40.32 = $991.87
Overhead: 24.6 × $25/hr = $615
Total labor cost: $1,607
Price at 30% margin: $1,607 ÷ 0.70 = $2,296
A contractor who estimates at wage rate only (16 hrs × $32 = $512) would price the labor at $512 and lose $1,095 on this portion of the job alone.
What to track to improve your labor estimates
- →Track actual hours per task type across jobs — compare to estimates
- →Track reason for overruns: rework, scope creep, material wait, equipment downtime
- →Recalculate your productivity factor annually for each trade and task type
- →Track your actual burden rate against your assumed rate — adjust when insurance renews
Find your true burden rate
Burden Command calculates your true hourly cost including all employer-paid taxes and insurance.
Open Burden Command →Related