Burden Rate Calculator

About Burden Rate Calculator (Formula)

The Burden Rate Calculator is a tool used by businesses to determine the indirect costs associated with employing a person relative to their direct wages. It employs the formula:

BR=IC/DLC​

Where:

• $BR$ stands for Burden Rate.
• $IC$ represents Indirect Costs.
• $DLC$ denotes Direct Labor Costs.

Here’s an explanation of each component:

1. Indirect Costs (IC): These are the expenses associated with employing a person that are not directly tied to their wages. Indirect costs encompass various expenses, including employee benefits (such as health insurance, retirement plans), taxes, insurance, training, and other overhead costs related to the workforce.
2. Direct Labor Costs (DLC): This represents the actual wages paid to the employees for their time worked. It encompasses the basic salary or hourly wage paid to the employee without considering any additional costs or benefits.

The Burden Rate is usually expressed as a percentage and provides insight into the additional cost, beyond the direct wages, that a company bears for employing an individual. It aids in obtaining a more accurate understanding of the true cost of having an employee, factoring in all the associated indirect costs.

For instance, if the indirect costs for an employee amount to $5,000 and the direct wages are $20,000, then the Burden Rate can be computed as:

BR=5000/20000​=0.25

To express this as a percentage, it is multiplied by 100:

$BR=0.25\times 100=25\%$

Hence, in this example, the Burden Rate is 25%, indicating that the company incurs an additional 25% of the employee’s direct wages in indirect costs. This information is valuable for budgeting, cost analysis, and making informed decisions about staffing and resource allocation within a company.