Burden Rate

Burden: Think a fat ox, loaded down with taxes, hauling duties, and lawyers. Fat ones.

There are two main types of costs in accounting for an industry: direct costs and indirect costs. Direct costs include employee wages, raw materials, and manufacturing supplies...while indirect costs are expenses such as employee benefits, rent, utilities, and general and administrative salaries for employees who aren’t involved with manufacturing. These are said to “burden” the really important direct costs.

Also known as overhead, to calculate the burden rate for one person working in labor, for example, you would simply divide the person’s total benefits amount by their salary to get a decimal. If someone is earning $100,000 and the cost of their benefits is $50,000, then the burden rate is $0.50 per one dollar of wages. You want the burden rate to be as low as possible.

This information can be useful for calculating the true cost of running a business, and to help decide if you are profitable or need to relocate or lay off workers as you cuddle with robots, just hoping your new metallic masters don't unionize.