Burden Rate

What is the 'Burden Rate'

The burden rate consists of indirect costs associated with employees, over and above gross compensation or payroll costs. Typical costs associated with the burden rate include payroll taxes, worker's compensation and health insurance, paid time off, training and travel expenses, vacation and sick leave, pension contributions and other benefits. The burden rate provides a truer picture of total labor costs than payroll costs alone.

BREAKING DOWN 'Burden Rate'

Many of the costs associated with the burden rate are hidden costs that are not readily apparent. Since total labor costs, including the burden rate, may be as much as 50% higher than payroll costs alone, it is necessary to calculate the burden rate accurately to get a better picture of profitability.

The burdened rate is only made up of costs above and beyond the employee’s associated base salary or compensation, as those are calculated separately within the unburdened rate, and is often considered a hidden cost of maintaining an employee. The burdened rate includes additional liabilities associated with employee costs, such as any legally mandated insurances, additional benefits and paid leave.

Required Burdened Costs

The most commonly required burdened expenses include various payroll taxes, such as those associated with Social Security, Medicare, unemployment and any additionally mandated worker’s compensation of disability insurances that are required by the federal government or the state the business is operating in. If your business is over a certain size, there may be additional mandatory expenses, such as health care offerings that must be provided to each employee. Depending on the location of the business, there may be additional local payroll or job training taxes.

Some businesses use information regarding the required burdened costs to determine where the business will choose to operate. Certain costs vary dramatically from one state to another, which can make different locations more or less attractive as places to conduct business.

Optional Burdened Costs

Other benefits may qualify as burdened costs as well. This can include retirement benefits and health-related accounts, including base health care offerings (if your business is not required to provide benefits to the particular employee), flexible spending accounts or health savings accounts, dental care, vision care, and prescription drug programs. If funds are provided for a company vehicle or cellphone, those must be included in the burdened cost calculations. Further, any food or beverage offerings, wellness activities, training costs, lodging for business trips, and required uniforms may also be added if the services are provided by the company.