# Labor Cost Calculator

URL: https://speedycalculator.com/calculators/finance/labor-cost/
Last updated: 2026-10-25

> The labor cost calculator works out the true yearly and hourly cost of an employee – gross pay plus payroll taxes, benefits and other costs – adjusted for paid hours that are not worked, and labor cost as a share of revenue.

## Inputs

- Hourly pay rate
- Paid hours per week
- Paid weeks per year
- Paid days not worked (holidays, vacation, sick)
- Employer payroll taxes (%)
- Benefits per year (health, retirement)
- Other annual costs (training, equipment)
- Revenue generated per year

## Results

- Gross pay per year
- Hours paid but not worked
- Net hours worked per year
- Annual labor cost
- True cost per hour worked
- Labor burden over gross pay
- Labor cost as a share of revenue

## Formula

```
Gross pay = hourly rate × paid hours per year
Annual labor cost = gross pay × (1 + payroll taxes) + benefits + other costs
Hours actually worked = paid hours − (holidays + vacation + sick days) × hours per day
True hourly cost = annual labor cost ÷ hours worked
```

## Explanation

An employee costs much more than their wage. In the U.S., employer payroll taxes (Social Security, Medicare, unemployment insurance) add about 8–10%, and benefits such as health insurance and retirement contributions often add another 20–30%.

### How to use the Labor Cost Calculator

- **Hourly pay rate**
- **Paid hours per week**
- **Paid weeks per year**
- **Paid days not worked (holidays, vacation, sick)**
- **Employer payroll taxes**
- **Benefits per year (health, retirement)**
- **Other annual costs (training, equipment)**
- **Revenue generated per year**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the pay rate, hours per week, paid days off, payroll tax rate, benefits and other costs, and your revenue.

### Tips

- Use figures for the same period (a month, a quarter or a year) for every input so ratios compare like with like.
- Track the metric over time – the trend usually tells you more than a single value.
- Compare your result with industry benchmarks, which vary a lot between sectors.
- Treat the result as a starting point for a decision, then check the assumptions behind each input.

### Common mistakes to avoid

- Mixing monthly and yearly numbers in the same calculation.
- Using revenue where the formula needs profit (or the other way round).
- Forgetting hidden costs such as taxes, fees, overheads or your own time.

### Inputs explained

FieldWhat to enterHourly pay rateAmount in your currencyPaid hours per weekA numberPaid weeks per yearA numberPaid days not worked (holidays, vacation, sick)A numberEmployer payroll taxesIn %Benefits per year (health, retirement)Amount in your currencyOther annual costs (training, equipment)Amount in your currencyRevenue generated per yearAmount in your currency

### What each result means

- **Gross pay per year** = [Hourly pay rate]×[Paid hours per week]×[Paid weeks per year]
- **Hours paid but not worked** = [Paid days not worked (holidays, vacation, sick)]×[Paid hours per week]÷5
- **Net hours worked per year** = [Paid hours per week]×[Paid weeks per year] - [Hours paid but not worked]
- **Annual labor cost** = [Gross pay per year]×(1 + [Employer payroll taxes]÷100) + [Benefits per year (health, retirement)] + [Other annual costs (training, equipment)]
- **True cost per hour worked** = [Annual labor cost]÷[Net hours worked per year]
- **Labor burden over gross pay** = ([Annual labor cost]÷[Gross pay per year] - 1)×100
- **Labor cost as a share of revenue** = [Annual labor cost]÷[Revenue generated per year]×100

### Example values

How the main result changes when **Hourly pay rate** changes and everything else stays at the example values above:

Hourly pay rateAnnual labor cost12.538,71018.7552,8152566,92031.2581,02537.595,13050123,340

## Worked example

Inputs — Hourly pay rate: $25; Paid hours per week: 40; Paid weeks per year: 52; Paid days not worked (holidays, vacation, sick): 20; Employer payroll taxes: 8.5 %; Benefits per year (health, retirement): $9,000; Other annual costs (training, equipment): $1,500; Revenue generated per year: $250,000.

Results — Gross pay per year = $52,000.00; Hours paid but not worked = 160; Net hours worked per year = 1,920; **Annual labor cost = $66,920.00**; True cost per hour worked = $34.85; Labor burden over gross pay = 28.69 %; Labor cost as a share of revenue = 26.77 %.

## FAQ

**How much does an employee really cost?**
Typically 1.25–1.4 times their gross salary once taxes and benefits are added.

**What is a labor burden?**
The extra cost on top of wages: payroll taxes, insurance and benefits.

**What is a good labor cost percentage?**
Restaurants aim for 25–35% of revenue; service firms are often higher.

**What formula does the Labor Cost Calculator use?**
Gross pay = hourly rate × paid hours per year.


## Sources

- [U.S. Bureau of Labor Statistics – Employer costs for employee compensation](https://www.bls.gov/news.release/ecec.nr0.htm)