Archive of Forums > General Contractor > Burden Rate Calc vs Overhead Rate

Wed, 10/26/2011 - 3:31pm  
Melissa Rutledge

I have been asked to calculate our Burden Rate.  Historically we have just used a specific rate for each general condition item and not used an overall rate. To calculate our Burden rate per direct labor hour, I plan on calculating a total of : FICA and other payroll taxes, workers comp costs, bonuses, health insurance, cell phone, fuel and automobile depreciation. Is this fairly standard for other companies?  Also, I wasn't sure if it is common to include general liability in this rate (our G/L cost is a hybrid based on sub costs and wages).  Is this rate different from the "Overhead Rate"?

 Thanks for your input!

Fri, 02/10/2012 - 9:36pm #1
Melissa Rutledge Thank you for your time, this response was very helpful and informative!
Fri, 02/10/2012 - 9:30pm #2
Melissa Rutledge Thank you David, this was very helpful!
Wed, 11/09/2011 - 7:05pm #3
David Barnes

I see you have received conflicting ideas here. One way to think of it is this:

Burden are costs (besides base & OT pay) which are directly related to the Direct labor hours and costs. PR taxes, WC insurance, and the stuff mentioned here are some of the more obvious ones. Our GL premium is derived as stated above including a piece for sub costs, so it must be included. Also, we are a union shop so for every DL hour worked, we incur union benefit liabilities which are included in the burden. A general burden rate is useful in high-level planning for direct costs on a project or for a division. Just take the sum of all the burden type costs (for a month, say) and divide it by the total straight-time equivalent labor cost for the same period and, bang! you get 36% to 65% or somewhere thereabouts.

Overhead rate costs are indirect costs incurred by support organizations like management, accounting, sales, engineering etc which get distributed to jobs in the costing system via overhead rates which are usually a percent times direct labor cost or a rate per DL hour.

Unfortunately, many management folks use these terms interchangebly, so it would be useful to make sure which one you are talking about.

Wed, 11/02/2011 - 1:47pm #4
Douglas Godwin

You are on track.  I have seen all P&C insurance costs as part of payroll burden, as well as a company's 401(k) match.

The payroll burden rate is different from the overhead rate.

Items in the overhead rate bucket vary among companies.  Typically it includes all SG&A expenses as a percent of sales or direct cost.

Thu, 10/27/2011 - 9:31am #5
David Womack


 It is very common to include General Liability cost in the calculations.  In fact, the 'applied' GL rate should include an allowance for non-payroll based portions of GL as well.  By way of example, most of us get charged a separate rate for Subs on our GL.  I take the total estimated Sub expense and divide it by estimated PR and increase my 'applied' GL rate for every payroll dollar accordingly.  You have to allocate this cost to jobs in some reasonable method, and increasing the PR allocation rate is far and away the easiest method.  Although, this said, if your Sub volume changes dramatically up or down in any given year, you will need to evaluate and adjust periodically, probably quarterly.

As far as philosophy goes, it depends on whether you do mostly hard bid or mostly negotiated work.  A lot of companies calculate two different 'burden rates'.  One rate for hard bid work and a separate one for negotiated or cost reimbursable jobs.  The hard bid rate should include all of the direct costs, whereas the negotiated rates need to include everything you can justify on a cost reimbursable contract.  Include all fringes, and even an allocation for vacation time for direct field workers for whom, on most contracts, all fringes are chargeable as direct cost to the job.  Don't include the vacation time on any project manager that has to be allocated to the job, unless his time is considered reimbursable according to your contract.

 Hope this helps!  David

Thu, 10/27/2011 - 8:39am #6
Carol Schramm There is no one way to calculate overhead rates or what to include in them.  We are a large Engineering company and have multi-tiered overhead rates.  Our Standard Burden includes all costs related to health insurance, payroll taxes, 401k, HR systems, workers' comp and general liability.  Our overhead rate is strictly for the engineer which includes rent, IT, HR, cell phones, training, and non billable hours.  Then we have a G&A rate for the non-billable staff.
Thu, 10/27/2011 - 8:26am #7
Lucrezia Esteban


A burden rate is like manufacturing overhead rate.  It is calculated to apply burden to inventory (WIP).  We compute burden rate by dividing indirect costs by labor-related direct costs of our projects. 

Theorectically your 'overhead rate' is a calculation to collect all costs not directly incurred while performing your trade.  (e.i. selling and general administration expenses)

Hope this clarifies a bit.