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.