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Time & payroll / Labor Cost Calculator

Labor Cost Calculator

Total labor cost and the share of your sales it takes, compared with a target percentage.
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Labor cost percentage
29.0%
$11,600.00labor cost
16.0%labor burden
$12,000.00budget at 30%
$0sales $40,000.00
  • Labor
  • Left for everything else
Gross wages$10,000.00
Payroll taxes and benefits$1,600.00
Total labor cost$11,600.00
Sales$40,000.00

$400.00 under a 30% target.

See breakdown

How the labor cost calculation works

  1. Labor cost includes more than wages

    Add payroll taxes, benefits and any bonuses to gross wages. $10,000 of wages plus $1,600 is $11,600.

  2. Divide labor cost by sales for the same period

    $11,600 ÷ $40,000 = 0.29, so labor is 29% of sales.

  3. Labor burden is the extra cost per dollar of wages

    $1,600 ÷ $10,000 = 16%, so each $1 of wages costs $1.16 once payroll taxes and benefits are added.

  4. Compare with a target

    At a 30% target, the labor budget on $40,000 of sales is $12,000, so you are $400 under.

Worked example. A business with $40,000 in monthly sales, $10,000 of wages and $1,600 of payroll taxes and benefits has a labor cost of $11,600, which is 29% of sales.

Labor Cost FAQ

How do I calculate labor cost percentage?

Divide total labor cost by total sales for the same period and multiply by 100. $11,600 ÷ $40,000 = 29%.

What is the labor cost formula?

Labor cost = gross wages + employer payroll taxes + benefits. Labor cost percentage = labor cost ÷ sales × 100. With the defaults, $10,000 + $1,600 = $11,600, and $11,600 ÷ $40,000 = 29%.

What is labor burden and how do I calculate the labor burden rate?

Labor burden is what an employee costs on top of gross wages: employer payroll taxes, benefits, workers' comp and similar costs. Divide that extra cost by gross wages. $1,600 ÷ $10,000 = 16%. A burdened labor rate is the hourly wage × (1 + burden rate), so a $25 wage with a 16% burden is $29 an hour.

What is a typical labor burden?

For a national benchmark, the BLS reports that in June 2026 private industry employers paid $46.89 per hour worked: $32.82 (70.0%) in wages and salaries and $14.07 (30.0%) in benefits. That is $14.07 ÷ $32.82, or about 42.9% on top of wages. BLS counts paid leave as a benefit, while many businesses keep paid leave inside wages, so a small business that does that will usually see a lower burden rate.

What should labor cost be as a percentage of sales?

There is no single official benchmark. It depends on the trade, how much of the work is done by staff, and what you charge. Labor-heavy service work runs much higher than retail, which carries the cost of goods instead. Set a target from your own margins and track the trend month by month.

What counts as labor cost?

Gross wages and salaries, overtime, bonuses, employer payroll taxes, and benefits such as health insurance and retirement contributions.

Should owner pay be included?

Include it if the owner draws a wage for work in the business. Otherwise the percentage looks better than it is.

Sources: BLS: Employer Costs for Employee Compensation, June 2026 (released 9 Sep 2026) · IRS: Publication 15 (2026), Employer's Tax Guide

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