You’re looking at your payroll numbers and thinking, “This can’t be right.” The salary you agreed to pay your new marketing manager was $75,000. But somehow, the actual cost to your business is closer to $95,000.
Welcome to labor burden—the gap between what you think you’re paying employees and what you’re paying.
Labor burden is everything beyond that base salary or hourly wage. Health insurance premiums, payroll taxes, paid time off, that work-from-home stipend, bonuses, and all those other costs that add up faster than you’d expect. It’s the real price of having great people on your team.
This matters because if you don’t know your true labor costs, you can’t make smart decisions about hiring, pricing, or expansion. You might think you can afford to hire three new people when you can afford two. Or you might be underpricing your services because you’re not accounting for the full cost of delivering them.
And if you’re thinking about expanding globally? Understanding labor burden becomes even more critical. Different countries have different mandatory benefits, tax structures, and employment costs that can dramatically impact your budget.
Let’s break down how to calculate your real labor costs so you can plan, price, and grow with confidence.
What counts as labor burden?
Payroll burden will include any and all expenses you pay to keep your employees—from their paycheck to their benefits. These direct and indirect costs give you a picture of the true cost of your workforce.
Burden rate percentage includes:
- Payroll taxes
- Paid time off
- Retirement benefits
- Health insurance
Why should I know my labor burden rate?
Your employee’s salary alone doesn’t give you the full picture of how much they cost your company. Your labor burden rate helps you be more informed about true employee cost, including fluctuations in health insurance, benefits, and other voluntary expenses.
Knowing this metric helps you make more informed decisions about which benefits you can realistically afford, whether or not you can onboard more employees, and where you can cut costs.
Examining labor burden rates on a global scale can also help you hire abroad. Average labor burden rates vary from country to country, so seeing how yours stacks up to other countries helps you make the decision to look globally or keep your employees closer to home.
Labor taxes across the globe
Payroll taxes vary across the globe—for example, Belgium’s labor taxes are over twice as high as Mexico’s.
According to the OECD, here are how various countries’ labor taxes stack up when combining income tax and social security contributions from both employer and employee:
| How do labor taxes vary across the globe? | |
| U.S. | 30% |
| Japan | 33% |
| Norway | 36% |
| France | 47% |
| Belgium | 53% |
| Australia | 29% |
| Mexico | 20% |
| Turkey | 38% |
| U.K. | 31% |
Information on this page was last updated on June 3, 2024, and is subject to change. Pebl makes no representations as to the accuracy or completeness of the information on this page.
How to calculate labor burden rate
To calculate your labor burden rate, divide indirect payroll costs by direct costs. This rate represents additional employment costs you’ll pay beyond your employees’ gross wages. For instance, if an employee earns US$75,000 annually and your labor burden rate is 24%, you’ll pay an additional US$18,000 in insurance, paid leave, and other indirect costs for that employee.
Below, we provide step-by-step instructions for calculating your labor burden rate.
1. Determine the employee’s gross pay
Gross pay is the amount you pay in wages before any deductions like tax, 401(k), or insurance rates are taken out. In other words, your employee’s gross pay is just their salary or hourly rate. For hourly employees, you’d calculate gross pay by multiplying the hours your employee works per week by their hourly rate and then the number of weeks they work per year.
2. Calculate the cost of payroll taxes
Next, employers must calculate the payroll taxes they are responsible for paying on their employees’ wages. The employee pays their own portion from their wages, and employers foot the bill for the employer percentage.
For example, in the U.S., these payroll taxes are often broken down like this:
- Federal Insurance Contributions Act (FICA). These taxes include Social Security and Medicare.
- Federal Unemployment Tax Act (FUTA). Employers contribute 6% to federal unemployment taxes on the first $7,000 they pay their employees during the calendar year.
- State Unemployment Tax Act (SUTA). This is usually an employer-only tax with a rate that varies from state to state.
Do you want to calculate how much it costs to hire an employee abroad? Use our employee cost calculator below to get reliable insights into employee costs and payroll contributions around the world:
3. Calculate other voluntary payments
Some employers take on additional payments by providing supplemental benefits to their employees. While these may attract quality talent to your organization, they also increase your labor costs.
Some supplemental benefits employers may provide include:
- Additional paid time off
- Additional retirement plan contributions
- Supplemental private health insurance
Add up any benefits you provide as part of your global compensation package and include them in your indirect labor costs.
4. Total the individual percentage
To get your payroll burden rate, use the following formula:
(Indirect employee costs / direct payment costs) x 100
Indirect employee costs are the costs found in steps two and three above—taxes, insurance, and benefits. Direct payroll cost is your employee’s gross wage.
For example, say you pay an employee $60,000 per year. You also pay an additional $8,000 when you factor in taxes, insurance, and benefits. That means you’d divide $8,000 by $60,000 and multiply by 100 to get your payroll burden percentage, which would be 13%.
Best practices for implementation
Regular review and adjustment of labor burden rates is essential for accurate financial planning.
Consider these key points:
- Recalculate rates at least annually
- Account for changes in benefit costs
- Factor in industry-specific requirements
- Consider regional variations in mandatory contributions
This systematic approach to calculating and applying labor burden rates enables businesses to maintain accurate cost projections and make informed decisions about workforce management.
FAQs about labor burden and payroll costs
When you start digging into labor burden calculations, questions come up fast. Here’s what business owners typically want to know about the real cost of their workforce.
What is the difference between labor burden and gross wages?
Gross wages are the base salary or hourly pay that employees receive before any deductions or withholdings. Labor burden covers all additional employment costs beyond these wages, including mandatory contributions, benefits packages, and insurance premiums. This difference matters because it shows you what you’re really spending on your team—not just what appears on their paychecks.
Why is calculating labor burden rate important for global hiring?
When you’re hiring globally, labor burden calculations become your financial compass. That developer in Germany doesn’t just cost their salary—there are mandatory social contributions, vacation requirements, and local taxes that can add 30% to 40% to your base costs. Meanwhile, hiring someone in Singapore might have completely different cost structures.
Without understanding these variations, you’re essentially guessing at your international hiring budget. You might think you can afford to hire five people across Europe when you can really afford three. Or you might discover that expanding into a specific country is way more expensive than your initial projections suggested.
Accurate labor burden calculations help you make smart decisions about where to hire, how to structure your global team, and what your expansion will cost. Because when you’re building a distributed workforce, getting the numbers wrong doesn’t just impact this quarter’s budget—it can derail your entire growth strategy.
How frequently should I recalculate my labor burden?
You should recalculate your labor burden at least once a year to keep your numbers accurate. But when big changes happen—like new benefit programs, insurance rate increases, or tax law updates—it’s worth running the numbers again sooner.
Why? Because outdated labor burden calculations can throw off your entire budget and pricing strategy. You want your financial planning based on what things cost, not what they cost six months ago.
Do labor burden rates change depending on where you hire within the same country?
Absolutely. Even within one country, your labor costs can vary significantly based on location. Different states, provinces, or regions often have their own tax rates, insurance requirements, and local benefits mandates.
Take the United States, for example. Hiring someone in California means dealing with higher state taxes and more generous mandatory benefits compared to hiring in Texas. In Germany, different regions have varying church tax rates. In Canada, provincial health premiums and workers’ compensation rates differ from province to province.
These regional differences can add up to thousands of dollars per employee annually, which means your hiring location impacts your budget just as much as your hiring decisions. It’s worth factoring these variations into your workforce planning, especially if you’re considering multiple locations within the same country.
Get labor burden calculations right the first time
You’ve got enough to worry about without wondering if your payroll calculations are accurate. When you’re expanding globally, getting labor burden wrong doesn’t just mess up your budget—it can mean compliance issues, unexpected costs, and finance teams scrambling to explain budget overruns.
That’s where Pebl’s Employer of Record (EOR) services come in. We handle the complex labor burden calculations in every market where you want to hire, so your HR and finance teams get transparent, accurate numbers from day one. No surprise costs. No compliance gaps. Just clear budgeting for your global expansion.
Our in-house experts stay on top of changing regulations, collective bargaining agreements, and local requirements in 185+ countries. When labor laws change in Germany or tax rates shift in Singapore, we’ve already updated your calculations. You get accurate numbers without having to become an expert in international employment law.
The result? You can hire confidently, budget accurately, and grow globally without the headache of tracking labor costs across different countries.
Ready to simplify your global payroll calculations? Let’s talk about how Pebl makes international hiring straightforward.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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Topic:
Payroll
