SHORT VERSION
Your labor burden rate is what one hour of an electrician’s time costs you before overhead and before profit. It’s built from two numbers: everything one of your guys costs you across a year, divided by the hours of his that ended up on an invoice. Paid hours and billable hours are not the same. Drive time, shop time, the counter at the supply house, callbacks, vacation: those get paid and never billed, and counting them in the divide is what makes an old rate come out low. Build the number once, put it in the price book with the date it was built, and have every estimate pull from that field.
You can’t look this one up. Your labor burden rate gets built out of two numbers you already have: what one of your guys costs you across a year, and how many of his hours ended up on an invoice. Divide the first by the second and you’ve got what an hour of his time actually costs you before you’ve made anything on it. Most old rates came out low because of the second number, because a lot of hours get paid and never billed.
Where the number you’re using came from
You set it once. You took what you were paying a journeyman, put something on top of it that felt about right, looked at what the shop across town was charging, and started quoting work. And it held. The jobs came back close enough to the estimate that there was never a reason to go back and check the math.
Then wages moved. Comp renewed at a different rate. You put another truck on the road. Health insurance went up, twice.
Every one of those changed what an hour of a man’s time costs you. None of them changed the number in the estimate, because there’s nowhere in the estimate where that number gets checked. It lives in a spreadsheet, or in a price book built four years ago, and nothing in the way a quote gets put together ever asks whether it’s still true.
What hours do you divide by?
Take one journeyman over one week. He clocks in, drives to the first call, drives between calls, waits at the counter on a part that wasn’t on the truck, comes back to the shop, restocks, goes home. Every one of those hours is paid. Only some of them can go on an invoice.
The ones that can go on an invoice are your divisor. Drive time, shop time, supply house runs, training, vacation and holidays, and going back to fix your own work all come out of it. A callback gets paid exactly like any other hour and there’s nothing to invoice when it’s finished.
Spread a year of cost across every hour you paid for, including all of those, and the rate comes out low. Nothing about the job looks wrong afterward, either. Job costing comes back close to the estimate, because the estimate was built on the same number.
Building the number
1. Total what one electrician costs you for a year.
Start with the wage. Then add everything you pay because he’s on your payroll: payroll taxes, workers comp, health insurance if you carry it, paid vacation and holidays, license renewals and continuing education if you cover them, his phone, his uniforms, and any tools or test equipment you supply.
If a truck is assigned to him, the payment, the fuel, the insurance, and the maintenance can sit in his cost or they can sit in overhead. What matters is that every cost gets counted once and you know which bucket it’s in.
Do this for one man at a time. If a journeyman and a second-year apprentice cost you very different amounts, they need their own numbers.
2. Pull the divisor off a report, not out of your head.
Take the hours you paid him over that same year and take out everything that couldn’t be invoiced. What’s left is billable hours. That number either comes off a report or it comes off a memory, and the whole rate rides on which one. If the clock doesn’t separate drive, shop, supply house, service, and warranty work yet, that report can’t be built, and the cost codes have to go on before the rate is worth anything.
3. Divide, then put the answer where prices actually get made.
Cost divided by billable hours gives you burden: what an hour costs you before overhead and before profit. It isn’t your billing rate. Overhead and the margin you want sit on top of it, and that’s a separate decision from this one.
Then the number goes into the price book and the estimate template as one field with the date it was built on it, and every flat-rate task and every T&M quote pulls from that field. Nobody types a rate into a quote. A rate that can be typed will drift back to whatever number somebody remembers.
Then it rebuilds itself
The last rate didn’t go stale because nobody remembered to look at it. It went stale because looking at it was never attached to anything that already happens.
Attach it to payroll. A wage change, a comp renewal, a truck going on the road: those are already things you do, and each one is the moment the burden field gets rebuilt.
The date on the field is the backstop. Rebuilding the number takes a year of cost and a report of billable hours, so it isn’t something anybody is going to do in the middle of writing a quote. What the date does is keep a rate nobody has touched in a year from going out the door looking as solid as one built last month.
Common questions
Is labor burden the same as overhead?
No. Burden is what it costs to have one electrician working: his wage plus payroll taxes, insurance, vehicle, and paid time off. Overhead is what it costs to have the company at all, the office, the software, the phones, the person answering them. Both end up in your price, but they’re two separate numbers, and blending them is how a rate ends up wrong in both directions at once.
Should the truck go in labor burden or in overhead?
Either one works. If a truck is assigned to one man and goes where he goes, putting it in his cost gives you a truer number for an hour of his time. If trucks get shared and swapped around, overhead is simpler. Pick one, write down which one you picked, and make sure it isn’t landing in both places.
What hours do I divide by to get a burden rate?
The hours you can put on an invoice, not the hours you pay for. Take the paid hours for the year and take out drive time, shop time, supply house runs, training, vacation and holidays, and warranty or callback work. If the clock doesn’t break those out by cost code, that has to go on first, because everything after it is a guess without it.
How often should I rebuild the rate?
Don’t put it on the calendar. Tie it to the things that actually change the cost: a wage change, a workers comp renewal, a new truck, an insurance increase. Rebuild the number when one of those happens, and stamp the date on it, so a quote built off an old rate is visible before it goes out the door.
