How to Calculate Labor Burden

Employers incur enormous expenses associated with maintaining a work force. Costs to employer workers include far more than simply wages, compensation, incentives and bonuses. Calculating labor burden means factoring in every dollar expended on behalf of the employee as well as the employer. While human resources compensation specialists are generally responsible for calculating labor burden, an organization's executive leadership must be involved in the process as well. Company projections, revenue, budget processes and objectives rely on historical, current and forecast costs of labor.

Assemble all documentation pertaining to employee status. Ask your IT staff to assist with compiling employee data, such as wages, compensation, performance-based increases, monetary rewards and other financial incentive payments. Include anticipated and projected expenses that affect the work force. Anticipated expenses include hiring trends based on newly opened markets or expansion into global markets that will increase recruiting, hiring, training and development, and other labor expenditures.

Research payroll records to determine amounts paid for federal, state and local taxation based on employment. If your organization manages remote workers, double-check state and local tax amounts for employees stationed in locales distant from your headquarters site. Examine rules and regulations the Internal Revenue Service publishes about tax law updates and changes based on your company's fiscal year and calendar year. Employers that outsource payroll administrative functions should contact the provider for this information. Ensure the information you obtain from an outsource provider is accurate and up-to-date.

Review benefits costs and other expenses related to employee insurance. Employee insurance costs include employer contributions for group health care plans, insurance premiums for workers' compensation and safety programs, and insurance obtained for executives, such as general liability and errors and omissions policies. Law firms, health care providers and other professional services providers will also need to calculate premiums for malpractice insurance, employer liability and risk management fees. Insurance coverages, such as short-term and long-term disability are additional amounts paid on behalf of all employees.

Determine amounts you contribute to income protection plans, stock options, employee stock purchase programs and employer contributions to 401(k) or 403(b) retirement savings plans, which are elements of the total labor burden. Employer contributions are, in many cases, based on actual and projected employee contributions, therefore, underestimating your contributions could lead to inaccurate totals. It's safer to assume that all employees will participate in some form of retirement savings than to base your calculations on assumptions that only a fraction of your work force is planning for future income. Employers who provide traditional pensions will likely have an easier task of projecting labor burden. Changes to employment due to turnover, retention and attrition have an impact on guaranteed pension amounts.

Use the information you gathered and research concerning anticipated raises and tax hikes to prepare spreadsheets and formulas that can be easily realigned based on employee census reports. Employers with careful attention to detail are capable of producing precise figures upon which finance executives can rely during budget allocations. If your job includes making a presentation about labor burden to an executive committee, include an explanation of your processes and justification for any modifications based on employment trends.