The short answer
Payroll is the largest and most controllable expense in most HVAC businesses, which makes it the biggest lever on your profit. A technician costs far more than their hourly wage once you add payroll taxes, workers comp, and benefits, often 25 to 40 percent on top of the base rate. The contractors who stay profitable are not the ones who pay the least. They are the ones who track the true cost of labor, tie it to the work, and price their jobs to cover it. Get payroll right and your margin protects itself.
The wage is the part everyone sees. The rest is the part that quietly eats your margin.
Start with the base hourly rate. Then add the employer side of payroll taxes, Social Security and Medicare, plus federal and state unemployment. Add workers compensation insurance, which runs higher in the trades because the work carries real physical risk. Add any benefits you offer, like health coverage, paid time off, or a vehicle. Add the hours you pay for but do not bill: drive time, shop time, training, callbacks, and warranty trips.
Stacked up, a tech you pay at one rate can cost you 25 to 40 percent more than that. If you bid jobs off the bare wage, every job looks healthier than it is, and the difference shows up as a thinner bank account than your revenue promised.
| Cost component | Example |
|---|---|
| Base hourly wage | $28.00 |
| Employer payroll taxes (approx.) | $2.40 |
| Workers comp (trades rate) | $2.50 |
| Benefits and PTO | $2.50 |
| Unbilled time loaded in | included in pricing |
| Approx. burdened rate | ~$35.40+ |
These numbers are illustrative, not a quote. Your real burden depends on your workers comp class rate, the benefits you offer, and how much unbilled time you carry. The point is simple: the number you should use when pricing a job is the burdened rate, not the wage.
It is tempting to pay a tech as a 1099 contractor to skip payroll taxes and workers comp. For most HVAC technicians, that is the wrong call and a real risk.
The IRS and the State of Louisiana look at how much control you have over the worker. If you set their schedule, provide the truck and tools, direct how the work is done, and they work for you full time, they are almost certainly an employee, no matter what the paperwork says. Getting this wrong can mean back taxes, penalties, and a workers comp problem if someone gets hurt. When you are unsure, treat the worker as an employee or get a professional opinion before you decide. This is one area where the cheap path is usually the expensive one.
Here is the part most contractors miss. Payroll is not a standalone bill you pay every two weeks. It is the input to your pricing.
When you know your burdened labor rate, you can build it into your estimates and your job costing. When labor on a job runs long, you see it as lost margin, not just more hours. And when you review payroll against revenue each month, you can answer the question that decides whether a busy season was worth it: did the work my team produced cover what my team cost, with profit left over?
That is why we never look at payroll in isolation. Payroll, job costing, and pricing move together. Fix one without the others and the leak just moves.
Run payroll on a consistent schedule and keep the records clean and current, not reconstructed at year end. Track time against jobs so labor flows into your job costing. Keep a clear line between owner pay and company profit so you actually pay yourself. Set aside payroll tax money as it accrues, because the employer share and the withholdings are due whether or not you saved for them. And review labor as a percentage of revenue every month so a creeping problem gets caught early.
Louisiana has a flat state individual income tax, currently 3 percent, which affects what gets withheld from your team's checks, and the state has its own unemployment tax that employers pay. Your workers comp rates and class codes are specific to the trades. None of this is a reason to panic. It is a reason to keep accurate payroll records and to have someone who knows the trades keeping them. The goal is a payroll that is correct, on time, and fully traceable into your job costs.
| $28 |
| $35+ |
How much does it really cost to employ an HVAC technician?
Beyond wages, expect roughly 25 to 40 percent more once you add employer payroll taxes, workers comp, benefits, and unbilled time. The exact figure depends on your benefits and workers comp class rate.
Can I pay my HVAC techs as 1099 contractors?
Usually not. If you control their schedule, provide tools and a truck, and direct the work, the IRS and Louisiana generally consider them employees. Misclassification can lead to back taxes, penalties, and workers comp exposure.
What is a burdened labor rate?
It is the full hourly cost of an employee, including wages, payroll taxes, workers comp, and benefits. It is the rate you should use when pricing and job costing.
How can payroll hurt my HVAC profit margin?
Payroll is usually your largest expense. If you price jobs off the bare wage instead of the burdened rate, or you carry a lot of unbilled labor, you quietly lose margin on work that looks profitable.
This article is general information, not tax or legal advice. For your specific situation, confirm with a qualified tax professional.
Jeremy Brewer is the founder of 911 Bookkeepers LLC in Baton Rouge, Louisiana. He spent years as an HVAC field tech and works as a licensed paramedic in EMS. He is a Xero Certified Advisor and built 911 Bookkeepers for the trades.
Related posts in this series: Job Costing for HVAC · HVAC Bookkeeping: The 12 Numbers · Louisiana Sales Tax for HVAC Contractors
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