Three numbers serve three purposes
The hourly wage is the amount paid directly to the worker. The burdened labor rate estimates what the employer spends to obtain one productive hour. The customer billing rate is a pricing decision that may also recover overhead and profit. Treating the three as interchangeable is a common source of underpricing.
A simple example
An employee earns $30 per hour. Employer payroll taxes, workers’ compensation, benefits, and paid nonworking time bring the productive-hour employer cost to $42. That does not mean the customer rate should be $42. If overhead recovery is $12 per billable hour, full cost is $54. At a 25% target margin, the corresponding customer rate is $72 per hour.
Keep the layers visible
- Wage: direct worker compensation.
- Burden: employer costs attached to labor and productive-time adjustment.
- Overhead recovery: business costs not charged directly to one task.
- Profit: amount remaining after the complete cost.
Different jobs can justify different customer rates even when the employee wage is unchanged. Travel, supervision, equipment, risk, scheduling, and contract requirements may differ. Document the reason rather than changing a hidden multiplier.
Official starting points: IRS Employer’s Tax Guide and U.S. DOL overtime guidance.