Enter the indirect costs (overhead) and the direct cost of payroll into the calculator to determine the burden rate.
Burden Rate Formula
The following formula is used to calculate a burden rate.
BR = IC / DLC
- Where BR is the burden rate
- IC is the total indirect costs associated with hiring and maintaining employees
- DLC is the total direct labor costs of all employees
Burden Rate Definition
What is a burden rate? A burden rate is a ratio of indirect costs associated with hiring and maintaining employees to the direct costs of wages of those employees. The indirect costs include training, benefits, sick leave, pensions, etc.
How to calculate burden rate?
- First, determine the total indirect costs.
For this problem, the company has 20 total employees, and the average indirect cost per employee is $10,000.00 per year, so, the total would be 10,000 * 20 = $200,000.00.
- Next, determine the total direct wage costs.
The average salary per employee is $50,000 so the total direct wage costs is $1,000,000.00.
- Finally, calculate the burden rate.
Using the formula above, the burden rate is found to be 200,000/1,000,000 = .20.
About Burden Rate
What is a good burden rate? A good burden rate is considered anything under 20 cents per dollar of direct labor, also displayed as .20 or 20%.
What is a typical burden rate? The average burden rate in the US is .25 or 25 cents per dollar.