How to calculate labour rates and burden for fabrication estimating

Calculate labour rates by starting with the base hourly wage, adding payroll burden (Superannuation, workers compensation, payroll tax, leave loading), and then applying a workshop overhead factor (rent, power, equipment maintenance). The final step is to adjust for productivity, ensuring that the billable hours quoted cover the total cost of employment and workshop operation.

A common mistake is pricing only the wage and a generic markup. This often leaves the business under-recovering on fixed costs. Instead, use a structured cost build-up: Base Rate + Payroll Burden + Workshop Overhead = Recovery Rate. For how this feeds into broader quote risk, see pricing risk in quotes without hiding it.

The base rate is the hourly wage paid to the fabricator or welder. While it is the most visible cost, it is often less than 60% of the true cost of that person being on the workshop floor. The burdened rate includes all the additional costs required to employ that person in Australia.

Payroll burden typically includes Superannuation (currently 11.5% and increasing), workers compensation insurance, payroll tax (depending on state and total wages), and leave entitlements (annual, sick, and public holidays). In many Australian fabrication shops, the burden factor can add 30% to 45% to the base hourly wage before overhead is even considered.

To calculate your payroll burden, sum all non-wage employment costs and divide by the total hours worked. A practical checklist for an Australian business includes:

Once you have your total burden percentage, apply it to the base rate. If a welder earns $45/hr and your burden is 35%, the burdened labour cost is $60.75/hr.

The workshop overhead includes all the costs required to keep the lights on and the machines running, regardless of whether a specific job is being worked on. This includes rent or mortgage, electricity (especially for high-draw laser or plasma cutting), gas, consumables, machine maintenance, and indirect staff like workshop managers or cleaners.

The most common way to apply overhead is as an hourly "burden" on top of the labour rate. Total annual workshop overhead divided by total annual billable hours gives you an overhead recovery rate. Adding this to your burdened labour rate gives you the true cost of an hour on the tools.

For example, if your burdened labour cost is $60/hr and your workshop overhead recovery is $25/hr, your total cost of production is $85/hr. Pricing below this number means the job is not contributing its fair share to the business fixed costs.

Not every hour a worker spends in the shop is billable to a customer. Maintenance, safety meetings, workshop cleaning, and tool setup are essential but indirect. If you assume 100% productivity, you will consistently under-quote your labour requirements.

Most fabrication shops achieve between 75% and 85% productivity. This means for every 8 hours paid, only 6 to 7 hours are directly applied to a project. To account for this, you must apply a recovery factor. If your target is $85/hr and your productivity is 80%, you need to quote at $106.25/hr ($85 / 0.8) to recover your costs.

This discipline ensures that the hours you actually charge for are high enough to cover the hours you cannot charge for. It is a critical component of a dependable RFQ intake and estimating process.

A repeatable labour rate calculator should be used to review rates at least every six months. As Superannuation increases, power costs shift, or rent reviews occur, your recovery rates must move to match. Keeping these rates updated in your estimating software ensures that every quote is based on current financial reality, not last year’s assumptions.

Note that this is your *cost recovery* rate. Margin and profit should be applied on top of this number depending on your commercial strategy and the risk profile of the project.

The most dangerous pitfall is using a "market rate" without knowing your own costs. If your competitor quotes $90/hr but your recovery rate is $110/hr, matching their price means you are losing money on every hour of work. You might win the job, but you are eroding your business health.

Another pitfall is failing to account for overtime. If a project requires weekend work or double-shifts, the payroll burden increases significantly. Estimators should have separate rates for standard, time-and-a-half, and double-time to ensure the extra cost of labour is captured accurately.

Finally, ignore "gut feel" for productivity. Track actual hours versus quoted hours over several months to find your true recovery factor. If your shop is consistently over-running on labour, your productivity factor may be lower than you think, or your estimators may be under-estimating the complexity of the work.