The Real Cost of One Employee: Why Contractor Rates Are Higher Than You Think

traverserenovation
Sep 27
3 min read

When homeowners look at an estimate and see labor rates of $60, $80, or even $100 per hour, many ask the same question: Why is labor so expensive? It’s easy to assume that most of that money goes straight into the worker’s pocket — but that couldn’t be further from the truth.

The reality is that hiring and maintaining even a single employee in the construction industry comes with layers of expenses that most people never see. Contractors don’t just cover wages — they take on insurance, taxes, vehicles, tools, overhead, and risks that all add up quickly.

Let’s break down the true cost of one employee to see where your money actually goes.

1. Base Wage (What the Employee Earns)

Suppose a skilled construction worker earns $25/hour. Over a year (40 hours per week × 52 weeks), that’s $52,000/year.

This is the number most homeowners see in their minds. But from the contractor’s side, that $52,000 is only part of the picture.

2. Payroll Taxes and Mandatory Insurance

Employers are required by law to pay a set of taxes and insurances on top of that base wage. These include:

Social Security (6.2%) – $3,224/year
Medicare (1.45%) – $754/year
Unemployment taxes (FUTA/SUTA) – $500–$1,000/year
Workers’ compensation insurance – $2,500–$5,000/year (higher in riskier trades like roofing)

➡️ Added cost: $6,500–$10,000/year

3. Benefits and Paid Time Off

To attract and retain good workers, many contractors offer some form of benefits. These costs can include:

Health, dental, and vision coverage – $6,000–$8,000/year
Retirement contributions (401k match, etc.) – $1,500–$3,000/year
Paid vacation and holidays – $2,000–$3,000/year

➡️ Added cost: $9,500–$14,000/year

4. Tools, Safety Gear, and Equipment

Employees need the right gear to work safely and effectively:

Power and hand tools – $1,000–$2,000/year
Safety equipment (boots, gloves, harnesses, PPE) – $500–$1,000/year
Uniforms and branded shirts – $300/year

➡️ Added cost: $2,000–$3,000/year

5. Vehicle and Travel Costs

In most trades, employees rely on company vehicles to get to job sites. The costs of a single truck or van, divided across employees, often look like this:

Lease or financing – $4,000/year
Insurance – $2,000/year
Fuel and maintenance – $3,000–$5,000/year

➡️ Added cost: $8,000–$12,000/year

6. Overhead and Business Operations

Every employee also carries their share of the company’s overhead — the “hidden” costs of running a professional construction business. This includes:

Office staff and project managers
Rent, utilities, and business software
Marketing, advertising, and websites
Accounting, taxes, and legal fees

This often adds 10–15% of wage cost, or about $5,000–$8,000/year.

The Final Tally

So, let’s add it all together for one $25/hour employee:

Base wage: $52,000
Taxes & comp: +$7,500
Benefits: +$11,000
Tools & safety: +$2,500
Vehicle & travel: +$10,000
Overhead: +$6,000

👉 Total annual cost: ≈ $89,000/year

That means one worker who “earns” $25/hour actually costs a contractor about $43/hour before profit — and that’s not even counting downtime, training, or unexpected costs.

Why This Matters for Homeowners

When you hire a contractor, you’re not just paying for the person swinging the hammer. You’re paying for:

A skilled worker who is trained and insured
The tools, trucks, and safety gear that make the job possible
Protection against liability through insurance and workers’ comp
A business infrastructure that ensures the work is managed, legal, and guaranteed

Contractors must also include profit margins to stay in business, cover risks, and warranty their work. That’s why you often see labor rates closer to $60–$100/hour — it’s the only way to realistically cover costs and still operate a sustainable business.

Conclusion

Not all businesses provide benefits, especially smaller contractors. But most of the other expenses — payroll taxes, insurance, vehicles, tools, and overhead — are unavoidable. Having employees is not just about paying wages; it’s far more expensive than most people realize.

So when you ask a contractor, “Do you have a team?” — think about what it actually costs to support that team, and whether you’re prepared to pay for the level of service and coverage that comes with it.

This is also why many smaller contractors work solo. For them, and for homeowners, a full crew is simply not affordable. Understanding these realities helps you see why contractor pricing is where it is today.

At Traverse Renovations LLC, we believe in clear, honest communication. We show you where your money goes and why it matters — because in the end, quality craftsmanship and peace of mind are worth the investment.