How to calculate your true loaded labor cost

The wage is maybe 70% of what an hour costs you. Here's the rest of it, line by line.

Ask a cleaning operator what labor costs them and most will say the wage. Seventeen dollars, twenty-two dollars, whatever they pay. It's the number on the offer letter and it's the number in their head when they price a job.

It is not what an hour costs. It's the largest single component of what an hour costs, and mistaking the part for the whole is the most expensive arithmetic error in this trade — because it doesn't produce a wrong answer once, it produces a wrong answer on every bid you make until you fix it.

The stack

Loaded labor cost is the wage plus every cost that exists because that hour was worked. Five layers, and the last one is the one everybody skips.

1. Base wage

Straightforward. Use the real rate you pay for the crew who'd actually run this account, not your cheapest hire and not an average across the company. If the job needs your good tech, price your good tech.

2. Payroll taxes

The employer side: Social Security and Medicare, plus federal and state unemployment. For most small US employers this lands somewhere in the high single digits as a percentage of wages, with state unemployment rates varying by state and by your own claims history. Get your actual figure off a recent payroll report rather than using a rule of thumb — it's a two-minute lookup and it's specific to you.

3. Workers' compensation

Janitorial classification codes aren't cheap, and the rate swings hard by state and by experience modifier. This is a percentage of payroll, so it scales with every hour you sell. Take it from your policy declarations page.

4. Paid time off and benefits

Here's the part that trips people. If you give a full-time cleaner two weeks of paid leave, you pay for roughly 2,080 hours a year and receive roughly 2,000 productive hours. That's about 4% you've already spent before anyone touches a mop. Add health contributions, uniforms, or a phone stipend if you provide them.

5. Turnover and rework — the line everyone sets to zero

This industry has high turnover, and turnover is not free. Recruiting, onboarding, the supervisor hours spent training someone who leaves in six weeks, the shift you cover yourself when a no-show happens at 8pm, the redo visit after a complaint.

You don't need precision to beat zero. Take a stab — 3%, 5%, 8% — and revisit it once you've tracked a year. A rough number in the right place beats an exact number in the wrong one.

Worked example

An hour of a $17.00 cleaner costs $21.17. Anyone pricing off $17.00 is short by $4.17 an hour — and on a contract running 78 labor hours a month, that's $325 a month, $3,900 a year, on one building.

Then there's overhead, which is not the same thing

Loaded labor is what the hour costs to produce. It doesn't include the business existing around it: general liability and bonding, the vehicle and its fuel, your phone, accounting, software, marketing, and the unpaid hours you spend quoting and invoicing.

Overhead gets allocated per billable hour, and the denominator is where the second big error lives.

Billable hours are hours you invoice, not hours you work. Driving, quoting, buying supplies, fixing a scheduling problem — all real, none billable. Operators overestimate this number almost universally, and overestimating it makes overhead per hour look smaller, which makes your floor look lower than it is.

Break-even per hour

Loaded labor plus overhead per hour is the number that actually governs your bidding:

Bill below $26.88 an hour on this crew and you are paying for the privilege of doing the work. Bill at $26.88 exactly and you have worked for nothing. Everything above it is margin, and margin is the only part you get to keep.

Three things to do this week

1. Pull your actual burden percentages off a payroll report and your workers' comp declarations page. Stop estimating what you can look up.
2. Count billable hours honestly for one month. Invoice hours only. The number will be lower than you think.
3. Put a real figure on turnover. Any figure. Zero is a decision, and it's the wrong one.