58 CHAPTER SEVEN
SUTA tax is paid on varies from state to state. For example,
in 2006, Texas companies paid SUTA tax on the first $9,000
of each employee’s wages and the rates varied from 0.10 per-
cent to 6.10 percent, whereas Utah companies paid on the
first $26,700 of each employee’s wages and the rates varied
from 0.10 percent to 9.1 percent. A company should contact
the state agency that is responsible for administrating the
state unemployment insurance program to obtain their
SUTA rate.
Workers’ Compensation Insurance. Wo r k e r s ’ c o m -
pensation insurance provides medical insurance benefits
and may reimburse some of the lost wages to employees
injured on the job or who contract an occupational illness.
It may also provide some death benefits for employees
killed on the job. By law employers must provide workers’
compensation insurance for all employees, except the own-
ers of the company. The workers’ compensation insurance
is paid entirely by the employer and is a labor burden cost.
The premium for workers’ compensation insurance is
based upon the dollar value of the payroll, the type of work
being performed, and the accident history of the company.
The rates paid for high-risk tasks, such as roofing, are
higher than low-risk tasks, such as office work. Workers’
compensation rates are based upon the loss history for the
local area. For medium and large companies, these rates are
modified by an experience modifier based upon the com-
pany’s claims for the last three years, not including the
most recent year. For example, the rate for 2010 is based
upon the losses for the years 2006 through 2008.
Experience modifiers range from about 0.6 to 2.0; with
numbers less than one representing a lower than expected
claim history and numbers greater than one representing a
higher than expected claim history. Because the workers’
compensation rates for medium and large companies are
based on actual losses, it is important that the company
take measures to improve safety and reduce the costs of
accidents.
General Liability Insurance. General liability insur-
ance provides the company with protection from lawsuits
arising from negligence of company employees, including
bodily injury, property damage or loss, and damage to
one’s reputation due to slander. The general liability
insurance premium is a percentage of the company’s pay-
roll. The rates are different for different classes of
employees and are highest for management personnel
who are responsible for making the decisions. General lia-
bility insurance is paid by the employer and is a labor
burden cost.
Insurance Benefits. Companies often provide employ-
ees with health, dental, life, or disability insurance. The com-
panies may pay all, part, or none of the premiums. The
portion of the premiums paid by the employer represents a
cost to the employer and is part of the labor burden. The
portion of the insurance premiums paid by the employees is
deducted from their wages; therefore, these costs are not part
of the labor burden.Retirement Contributions. Many employers provide
employees with access to 401(k) retirement programs or
other retirement programs. Often the employer contributes
money to the employee’s retirement program. The amount
the employer pays may be based upon many things, includ-
ing matching a percentage of the money the employee con-
tributes to the plan. For example, an employer may
contribute $0.50 for every $1.00 the employee contributes
on 6 percent of an employee’s wages. In this example, the
employer would contribute a maximum of 3 percent of the
employee’s wages. When estimating retirement costs based
upon matching employee contribution, the employer should
take into account the amount the typical employee con-
tributes to her retirement program. When the employer
pays money into an employee’s retirement plan, this money
represents a labor burden cost to the employer. The money
the employee contributes to the plan is taken out of the
employee’s wages and should not be included in the labor
burden.Union Payments. When employees belong to a union,
the employer is responsible for making payments to the
union. These funds are used by the union to provide bene-
fits (such as retirement and insurance) and training (such
as apprentice programs) for the employees. The amount
the company must pay to the union is found in the union
contract. The union may also require the company to
deduct union dues from the employee’s paycheck. The pay-
ments made by the company are a labor burden cost,
whereas the union dues deducted from the employee’s pay-
checks are not.Vacation, Holidays, and Sick Leave. Vacation, holi-
days, and sick leave are incorporated into the labor burden
by including the wages paid for vacation, holidays, and sick
leave in the employee’s wages before other burden costs are
calculated. By doing this, the burdened cost associated with
vacation, holidays, and sick leave is included in the total
wages. When determining the burden hourly wage rate, the
vacation, holiday, and sick leave hours are not included in
the billable hours. This incorporates the vacation, holiday,
and sick leave costs in the burden.Burdened Hourly Wage Rate. The cost of any other
benefits paid by the employer should be included in the cost
of the employee before determining the burdened hourly
wage rate. The burdened hourly wage rate is calculated using
Formula 7-6. The billable hours should only include hours