Overhead Burden Rate Calculator for Construction Companies
What Is the Overhead Burden Rate?
The overhead burden rate tells you how much of your company's fixed costs need to be recovered on every hour of field labor you put to work. It is not about what your employees cost — that is the labor burden rate. This is about what it costs to keep your company running while those employees are in the field.
Every contractor has overhead: office rent, admin salaries, owner's salary, vehicles, equipment payments, insurance, utilities, accounting fees, and more. Those costs exist whether you win jobs or not. The overhead burden rate spreads those costs across your productive field hours so you can recover them through your bids.
If you are not calculating this number and building it into your estimates, you are likely underpricing your work.
The Formula
Overhead Burden Rate = Total Annual Overhead Costs / Total Annual Field Labor Hours
A Worked Example
A roofing contractor has the following annual overhead costs:
Office rent: $24,000
Office manager salary: $52,000
Owner's salary (non-field): $80,000
Vehicles and equipment: $36,000
Insurance (non-labor): $18,000
Utilities and phone: $8,000
Accounting and legal: $12,000
Miscellaneous: $10,000
Total Overhead: $240,000
The same contractor employs 8 field workers averaging 1,500 productive hours per year each:
Total Field Labor Hours: 8 x 1,500 = 12,000 hours
Overhead Burden Rate = $240,000 / 12,000 = $20.00 per field labor hour
This means every hour a field worker is on the clock, the contractor needs to recover $20 in overhead on top of direct labor, materials, and profit.
What to Include in Overhead
Include any cost that supports the business but does not get charged directly to a job:
Office and administrative salaries
Owner compensation not tied to field work
Rent, utilities, and office expenses
Non-job vehicles and equipment
General liability and other non-job insurance
Professional fees (accounting, legal)
Marketing and advertising
Do not include direct job costs like field labor, materials, subcontractors, or job-specific equipment rentals. Those belong in your direct cost estimate.
What to Include in Field Labor Hours
Use productive hours only, meaning actual hours worked in the field. Do not include vacation, sick time, holidays, or administrative time. A common mistake is using total paid hours, which understates your overhead rate and leads to underbidding.
Why This Number Matters
A contractor who does not know their overhead burden rate is essentially guessing at their bid markup. You might win plenty of work and still lose money because your overhead is not being recovered. Knowing this number gives you a floor — the minimum you need to charge per field labor hour just to keep the lights on before you add profit.