If your labor rate is just your hourly wage plus a little markup, you are losing money on every job. Here is the complete formula for knowing what your crew actually costs per hour.
You bid a job at $65 per man-hour, win it, and finish the week with less money than you expected. Sound familiar? The problem is almost always the same: your labor rate only counts wages. It does not count the things that quietly eat into your margin every single day — payroll taxes, workers comp, vehicle costs, tools, and the overhead that does not stop just because a crew member called in sick.
Getting your real labor rate right is not optional. It is the foundation of every estimate you send. Get it wrong and you can win jobs all year and still not make money.
What Goes Into a Fully-Burdened Labor Rate
The fully-burdened labor rate is what it actually costs your business for one person to work one hour. It includes everything — not just their paycheck. Here is the full list:
- Base wages: Whatever you pay per hour in wages. This is your starting point, not your ending point.
- FICA (Social Security + Medicare): 7.65% on top of wages. You pay half — the employee pays the other half, but your half is a real cost.
- Federal + State Unemployment (FUTA/SUTA): Varies by state, typically 1.5–4% on the first $7,000–$40,000 of wages depending on your state's wage base.
- Workers compensation: In landscape construction, expect $8–$18 per $100 of payroll depending on your state and claim history. Texas is different — comp is not mandatory but most contractors carry it for commercial work.
- Health insurance or benefits: Even a basic health contribution adds $200–$600/month per employee. Divide by monthly hours to get an hourly cost.
- Paid time off and holidays: If you offer PTO, you are paying someone to not work. Calculate total PTO hours per year and add that wage cost to your annual labor expense.
- Vehicle and equipment allocation: Truck payments, fuel, insurance, and maintenance for the vehicle your crew drives. Divide annual cost by billable hours to get a per-hour number.
- Small tools and consumables: Blades, bits, safety gear, gloves, fuel for small equipment. These add up to $500–$1,500 per crew member annually for active crews.
The Formula: Step by Step
Let us build this out for a crew member earning $22/hour in wages. Assume 2,080 total paid hours per year (40 hours/week × 52 weeks), with 1,900 billable field hours after accounting for shop time, drive time, and rain days.
- Annual wages: $22 × 2,080 = $45,760
- FICA (7.65%): $3,501
- FUTA/SUTA (~2.5%): $1,144
- Workers comp (10% of payroll as example): $4,576
- Vehicle allocation ($12,000/yr truck ÷ 2 crew members): $6,000
- Small tools and gear: $1,200
- Total annual cost: $62,181
- Divide by 1,900 billable hours: $32.73 per hour fully burdened
That $22/hour employee is costing you $32.73/hour. If you are billing at $65/man-hour, your actual labor margin is about 50%. That sounds okay — until you add overhead.
"The contractors who know their real number bid with confidence. Everyone else is guessing — and losing money quietly."
Adding Overhead to Your Labor Rate
Overhead is everything your business spends that does not belong to a specific job. Office rent, accounting software, estimating tools, owner salary (if you are not in the field), marketing, insurance beyond workers comp, and administrative payroll. These costs exist whether your crew is on a job or not.
To allocate overhead into your labor rate: take your total annual overhead cost, divide it by your total annual billable field hours across all crews, and add that number to your fully-burdened labor rate. For a $250,000 revenue company running two crews at 3,800 combined billable hours per year, a $60,000 overhead load adds $15.79/hour to each burdened man-hour.
Combined labor rate with overhead: $32.73 + $15.79 = $48.52/hour before any profit margin. If you want a 30% net profit, your billing rate needs to be $48.52 ÷ 0.70 = $69.31/man-hour. Not $65. Not $60. Know the math.
Common Mistakes That Kill Your Labor Margin
Using total hours instead of billable hours. If your crew works 2,080 hours per year but only 1,750 are billable to jobs, your denominator needs to reflect that. Dividing by 2,080 makes your rate look lower than it is and underfunds your overhead recovery.
Forgetting seasonal gaps. If your crews work 9 months but are paid for 0 months during the slow season with no carry costs, that affects your annual hours. If you carry crew year-round even at reduced capacity, your annual cost stays high but your billable hours drop — that ratio gets worse fast.
Not updating the rate when wages increase. You gave two crew members a $2/hour raise in January. Did your billing rate go up? For most contractors, the answer is no. That is a quiet margin leak — $2/hour in wages becomes roughly $3.20/hour in fully-burdened cost, spread across every billable hour for the year.
What the Final Number Should Look Like
For a landscape construction crew in most U.S. markets, a fully-burdened and overhead-loaded labor rate before profit margin lands between $45 and $65 per man-hour. Billing rates that generate healthy margins typically run $75–$110/man-hour, depending on market rates and crew skill level.
If your billing rate is below $70/man-hour and you are paying competitive wages, something in your overhead or burden calculation is being missed. Run the numbers — not once, but every year when wages, insurance, or fuel costs change.
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Book a Demo →Frequently Asked Questions
What is the difference between a burdened and unburdened labor rate?
Unburdened is the raw hourly wage you pay the employee. Burdened adds all the employer costs on top — payroll taxes, workers comp, benefits, and any per-employee overhead like tools or vehicle allocation. For estimating purposes, always use the burdened rate. Using unburdened wages in your estimates guarantees you will underprice every job.
How much does workers comp add to my labor cost in landscaping?
Workers comp rates for landscape construction typically run $8–$18 per $100 of payroll, depending on your state and your claims history. A crew member earning $45,760/year in wages would cost you $3,661–$8,237 in workers comp alone. That is $1.93–$4.33 per billable hour that has to be recovered in your billing rate.
Should I include drive time in billable hours?
Drive time is a real cost — you are paying the crew to be in the truck. Whether you bill drive time directly to clients or absorb it into your overhead calculation, it has to be accounted for somewhere. Many contractors exclude drive time from billable hours in their rate calculation and instead price travel explicitly in estimates for jobs beyond a certain radius.
How often should I recalculate my labor rate?
At minimum, once per year — and immediately whenever wages change, insurance renews, or you add a new vehicle. Many contractors set their rate in year one and never revisit it. Three years later, wages are up, fuel is up, and their billing rate has not moved. Recalculate every time your cost structure changes.
What is a typical all-in billing rate for landscape construction in 2026?
Most landscape construction crews in 2026 bill between $75 and $110 per man-hour for installation work, depending on region, crew skill, and project complexity. Maintenance crews run lower — typically $55–$75/man-hour. Design-build firms with licensed designers and estimators on overhead often bill $90–$130/man-hour for installation. Know your market, but always start with your cost — not what competitors are charging.
Edgar Galindo
Co-founder, Ledge
Edgar built Ledge while running a landscape design-build company in Central Texas. He has priced hundreds of hardscape and planting jobs — and learned most of these lessons the expensive way.