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, workers' 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'

The burden rate costs are often hidden costs that are not readily apparent. Because 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 burden rate is made up only of costs above and beyond the employee’s associated base salary or compensation - those are calculated separately within the unburdened rate - and is often considered a hidden cost of maintaining an employee. The burden rate includes additional liabilities associated with employee costs, such as any legally mandated insurance, additional benefits and paid leave.

Required Burden Rate Costs 

The most commonly required burden rate expenses include various payroll taxes, such as those associated with Social Security, Medicare, unemployment and any additionally mandated workers' compensation required by the federal government or the state the business is operating in. If a 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 burden costs to determine where it 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 Burden Rate Costs

Other benefits may qualify as burden costs as well. This can include retirement benefits and health-related accounts, including base health care offerings (if a 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, these must be included in the burden cost calculations. Further, any food or beverage offerings, wellness activities, training costs, lodging for business trips and required uniforms may be added if the services are provided by the company.

RELATED TERMS
  1. Workers' Compensation Coverage ...

    Workers' compensation coverage A protects employees and provides ...
  2. Nonfarm Payroll

    Nonfarm payroll is a term used in the U.S. to refer to any job ...
  3. Payroll Card

    A payroll card is a prepaid card onto which an employer loads ...
  4. Cost Accounting

    Cost accounting is an accounting method that aims to capture ...
  5. Benefit Allocation Method

    The benefit allocation method is a means of funding a pension ...
  6. Cash Wages

    Cash wages are compensation for employees that come in the form ...
Related Articles
  1. Insurance

    Selecting The Right Mix Of Insurance Benefits

    Choosing employee benefits involves weighing the probability you will need them against taxes and cost.
  2. Retirement

    Why are 401(k) contributions limited?

    Find out why contributions to 401(k) retirement plans are limited, including what the current contribution limits are and how limits encourage participation.
  3. Taxes

    Small Business Tax Obligations: Payroll Taxes

    Don't leave it up to your accountant - owners are ultimately responsible for fulfilling tax obligations.
  4. Retirement

    8 Ways to Keep Down the Cost of Senior Care

    The cost of senior care today is off the charts. If you haven’t reached retirement age, what can you do to keep expenditures down?
  5. Retirement

    Is Your Health Insurance Enough For Retirement?

    Learn what to expect to pay for health insurance in retirement, what is covered through Medicare and what the Affordable Care Act means for retirees.
  6. Small Business

    Business Startup Costs: It's in the Details

    Don't overlook the details when starting up a business; it's the small expenses that have the potential to make or break a great idea.
  7. Managing Wealth

    Raises or Bonuses Better for Small Business Staff?

    Weigh the pros and cons of each and strike the right balance to retain a top-tier staff and a healthy bottom line for your business.
  8. Investing

    Who's Most Likely to Get Wall Street Bonuses?

    See what areas of finance were most likely to get you a bonus last year.
  9. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
RELATED FAQS
  1. What are the types of costs in cost accounting?

    Cost accounting aids in decision-making by helping a company's management evaluate its costs. There are various types of ... Read Answer >>
  2. How are period costs and product costs different?

    Product costs are the direct costs involved in producing a product. Period costs are all costs not included in product costs ... Read Answer >>
Trading Center