Translate a wage into a working-hour labor cost

Use the employer’s actual costs

Payroll taxes, workers compensation, health coverage, retirement contributions and other benefits vary by employer and employee. The percentages here are editable budgeting assumptions, not statutory tax or insurance rates. Use your payroll provider’s annual totals and current insurance basis where possible. Some costs have caps or do not apply to every wage dollar, so a single percentage is an approximation. Put fixed annual benefits in the dollar field instead of pretending every benefit scales with hourly pay.

Pay for leave once and remove its hours once

Annual wages already pay all entered paid hours, including paid holidays and PTO. The calculation leaves those wages in the numerator and removes nonworking hours from the denominator. Adding another PTO percentage to wages would duplicate the same expense. Unpaid time should reduce paid hours rather than appear as paid leave. The result is per working hour, not per billed hour; if some working time is not sold, the selling-rate model must recover that utilization loss separately.

Interpret the share of the shop rate carefully

The comparison rate shows how much of a hypothetical selling hour the labor component consumes. It does not prove that the remainder is profit. The balance may need to cover the machine, maintenance, floor space, quality, administration and return. A single operator tending two machines also requires an allocation decision: splitting labor evenly can be reasonable only if the actual process supports that staffing pattern. Compare the estimate with time records and payroll expenses over a representative period, then update the allocation when staffing or attendance changes.

• See labor inside a complete shop-rate calculation