Burden Rate - Explained
What is Burden Rate?
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Table of ContentsWhat is Burden Rate (Costs)?What Makes up the Burden Rate?Academic Research on Burden Rate
What is Burden Rate (Costs)?
Indirect costs related to employees beyond gross compensation or payroll costs is the burden rate. The labor burden is the dollar amount for every dollar of wages. For instance, a burden rate of $1.00 means that you are spending $1.00 on every dollar paid in gross wages on the costs of indirect labor. The burden rate includes typical costs such as health insurance, paid leave, travel and training expenses, vacation, sick leave, workers compensation, and payroll tax. The burden rate provides a more accurate view of the labor total costs than just viewing payroll costs by themselves.
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What Makes up the Burden Rate?
Much of the time, the costs of the burden rate are hidden. There are times when overall cost of labor is as much as 50% more than just the payroll costs by themselves. To gain an accurate view of the profitability the burden rate must accurately be calculated. Only the employees costs that are above and beyond compensation or salary make up the burden rate. These are the hidden costs of maintaining an employee. Additional benefits, paid leave, and legally mandated insurance are additional liabilities included in the burden rate. The state the business operates in and the federal government require burden rate expenses such as payroll taxes, Medicare, Social Security, unemployment, and workers compensation. Other mandatory expenses such as offerings of health care may be required to be offered to every employee if a business is over a specific size. The location of the business may incur additional job training or local payroll taxes also. The required burden costs are calculated to make a determination of where certain businesses will operate. Locations can become more or less attractive as costs vary significantly from one state to another. Burden costs may include other benefits offered to employees such as flexible spending accounts, retirement benefits, dental care, prescription drug care, vision care, and base health care offerings that are not required for the company to provide to a particular employee. Burden of cost calculations must also include cellphones or vehicles used for business by employees. Other services that must also be included in the calculations include wellness activities, beverage or food offers, business lodging for trips, training costs, and uniforms that are required.