4.2 Determining Business Overhead (FICA, FUTA, SUTA, Workers' Comp, Rent & Utilities)

4.2 Determining Business Overhead (FICA, FUTA, SUTA, Workers' Comp, Rent & Utilities)

Area B's overhead knowledge list is a catalog of costs you must recover even if no job is sold this week. Builder's Guide to Accounting (2001) splits those costs into direct job costs (cost of sales on a named contract: field labor, materials, subcontracts, job-specific equipment) and overhead (the shop, the office, the insurance, the unpaid-for trucks). Mix the two and a “busy” HVAC company shows profit on the job-cost report while the checking account dies. The Contractors Manual 2025 binds Circular E 2025 (IRS Publication 15, Employer's Tax Guide) as the employment-tax source; beginning February 1, 2026 the 2025 Manual is the listed B&F edition. When a wage base changes year to year, look up the figure in that Circular E. The percentage rates below are the statutory rates IRS Publication 15 states, and Publication 15 (2026) confirms the Social Security and Medicare percentages were unchanged from 2025.

Labor burden versus general overhead

Two recovery methods, one exam trap.

Labor burden rides on payroll. You estimate it as a percentage (or dollars per hour) of W-2 wages and allocate it to jobs by job payroll. Burden includes the employer share of FICA, FUTA, SUTA / Florida reemployment tax, workers' compensation on field classes, paid time off, holidays, and often employer-paid health or uniforms. Forget burden on a Class B changeout and the job looks profitable until the Form 941 deposit and the workers' compensation audit arrive.

General overhead is recovered through markup on every estimate, not as a surprise line on a 3-ton changeout. Rent, shop utilities, office salaries, advertising, communication (phones, dispatch software, radios), general-liability and auto premiums, equipment leases, and loan interest live here. Cost of sales / travel on the Area B list means selling and estimating travel, sales commissions, and bid mileage — overhead — not the condensing unit on a named job. Job materials and job labor are income-statement cost of sales (direct costs). The outline's “cost of sales/travel” item is the selling-expense bucket you still have to estimate.

Principal payments on a truck loan are not an expense; they are balance-sheet reductions of debt. Interest is the overhead (or, if a lender financed one job, a job cost). Candidates miss items when they dump the whole monthly truck payment into overhead as if it were rent.

FICA: Social Security and Medicare

FICA is the Federal Insurance Contributions Act. It has two pieces, each paid by both the employer and the employee:

• Social Security (Old-Age, Survivors, and Disability Insurance): 6.2% employer and 6.2% employee on wages up to the annual wage base. Circular E 2025 in the Contractors Manual lists the exam-year wage base. IRS Publication 15 states the 2025 wage base was $176,100 and the 2026 wage base is $184,500. Use the bound Circular E on the exam, not a remembered year.
• Medicare: 1.45% employer and 1.45% employee on all covered wages. There is no Medicare wage cap.
• Combined employer FICA on wages under the Social Security wage base is 7.65%. Combined employee withholding is also 7.65%.
• Additional Medicare Tax is 0.9% withheld from the employee on wages above $200,000 in a calendar year. The employer withholds it; the employer does not match it. It is not employer overhead.

A sole proprietor or partner pays self-employment tax of 15.3% of net earnings (12.4% Social Security up to the wage base plus 2.9% Medicare) instead of split FICA. An S-corporation owner who works in the business must take reasonable W-2 wages; remaining profit can be distributed without Social Security and Medicare tax. That is a tax-planning fact and a surety red flag when the qualifier takes only distributions.

FICA deposits are reported on Form 941 (quarterly) for ordinary employers. Circular E also covers deposit schedules. This chapter's exam point is the rate and the burden, not the deposit calendar (Area D payroll returns pick that up).

Worked employer-only FICA on one technician at $50,000 of W-2 wages, all under the wage base:

• Social Security: 0.062 × $50,000 = $3,100
• Medicare: 0.0145 × $50,000 = $725
• Employer FICA: $3,825 (7.65%)

That $3,825 is overhead/burden. It is not “the employee's problem.”

FUTA and Florida SUTA (reemployment tax)

FUTA is the Federal Unemployment Tax Act. Only the employer pays it; it is not withheld from wages. IRS Publication 15: the FUTA tax rate is 6.0% on the first $7,000 you pay each employee. You may take a credit of up to 5.4% for amounts paid into state unemployment funds if you pay those state taxes in full and on time. With the maximum credit, the effective FUTA rate is 0.6%, which is $42 per employee per year (0.006 × $7,000). Deposit FUTA quarterly when the liability exceeds $500; report annually on Form 940. The general FUTA test for a non-farm, non-household HVAC shop: you paid wages of $1,500 or more in any calendar quarter, or you had one or more employees on at least one day in 20 different weeks during the current or preceding year.

SUTA in Florida is reemployment tax, administered by the Florida Department of Revenue. Official FloridaCommerce / FloridaJobs employer guidance: tax applies to the first $7,000 of wages per employee per calendar year — the same dollar wage base as FUTA. New employers start at 2.7% (0.0270) until they have reported the required number of quarters (typically 10, sometimes 11). After that, experience rating runs from a minimum of 0.1% ($7 per employee on the $7,000 base) to a maximum of 5.4% ($378 per employee), except a higher cap for Short-Time Compensation participants. Pay Florida reemployment tax on time if you want the full 5.4% FUTA credit.

New-employer SUTA on that same $50,000 technician: 0.027 × $7,000 = $189. FUTA after full credit: $42. Combined federal and Florida unemployment on a new HVAC hire is $231 for the year — small next to FICA, but still burden, and it is not withheld from the tech.

Workers' compensation and general-liability rates

Workers' compensation is Chapter 440, not a CILB dollar limit. Construction-industry employers, including HVAC, must secure compensation when they have one or more employees. A qualifying officer's exemption never covers helpers. Premium is generally:

(payroll ÷ 100) × NCCI class-code rate × experience modification rate (EMR)

Florida HVAC field work is typically classified under NCCI 5537 (heating, ventilation, air-conditioning and refrigeration installation, service, and repair, including shop, yard, and drivers). Clerical office payroll, if truly separate, is a much cheaper class (commonly 8810). Sheet-metal shop fabrication may carry a different class than service techs. Do not memorize a dollar rate for the exam; rates change by filing year, carrier, and EMR. What B&F tests is classification: workers' compensation on field payroll is labor burden allocated to jobs. A 1.2 EMR is a 20% penalty on every hour; a 0.8 EMR is a 20% discount. Safety programs therefore show up in overhead as well as in OSHA compliance.

General liability for CILB licensing is $100,000 public liability and $25,000 property damage for air-conditioning contractors under Rule 61G4-15.003 — the same for Class A and Class B. Commercial specs often demand $1,000,000. The premium is general overhead (unless a project-specific policy is a direct job cost). Do not invent a GL rate percentage. Know that GL, auto, and inland marine are recovered in markup, while workers' compensation follows payroll.

Rent, utilities, leases, loan interest, advertising, communication, travel

These are the non-payroll overhead items on the Area B list:

• Rent of the shop, warehouse, and office. Florida HVAC needs indoor storage for equipment, copper, and recovery gear; a “home garage” that is not zoned or insured is not a plan.
• Utilities — electric, water, gas, trash. A Florida shop runs air-conditioning for the office and often for an equipment staging area year-round. Underestimating shop electric is a classic first-year miss.
• Leases of vehicles, a brake, a recovery machine, or the building. Operating-lease payments are overhead unless the equipment is rented to a named job (then job cost).
• Loan interest on trucks, real estate, or a line of credit. Interest is expense; principal is not.
• Advertising — truck wraps, yard signs, web ads, sponsorships. F.S. 489.119(5) requires the contractor's registration or certification number on advertisements. Advertising that offers Class A chiller work on a Class B ticket is both overhead waste and a Chapter 489 problem.
• Communication — phones, data plans, dispatch software, two-way radios. Overhead unless a contract makes a specific system reimbursable.
• Cost of sales / travel — estimator miles, bid walk-throughs, sales commissions. Track them. They are not job copper.

Worked shop: four technicians in Tampa

Coastal Comfort HVAC, LLC is a new certified Class B shop. Four W-2 technicians at $50,000 wages each = $200,000 field payroll, all under the Social Security wage base.

• Employer Social Security: 6.2% × $200,000 = $12,400
• Employer Medicare: 1.45% × $200,000 = $2,900
• FUTA after full credit: 4 × $42 = $168
• Florida reemployment tax at the new-employer 2.7%: 4 × $7,000 × 0.027 = $756
• Statutory payroll taxes before workers' compensation: $16,224, which is 8.11% of wages

Workers' compensation is then (payroll ÷ 100) × the current Florida class rate × EMR. Even before health insurance, paid time off, uniforms, and service vehicles, the loaded cost of a “$24-an-hour” tech is not $24. If general overhead (rent, utilities, phones, advertising, GL/auto, office manager, interest) runs about $10,000 a month, that is $120,000 a year that markup must recover in addition to burden and direct costs. Builder's Guide break-even is fixed overhead divided by contribution margin per revenue dollar. If you mark equipment at 10% and forget FICA and rent, August volume will not save you.

Florida HVAC scenario

Gulf Breeze Mechanical bids a 4-ton changeout in Pensacola at $85 per hour for two technicians because “that is what the unlicensed guy next door charges.” The shop's true field burden — employer FICA 7.65%, new-employer SUTA, FUTA, workers' compensation, and a slice of van insurance — is already more than $10 an hour before the tech's wage. Add the share of $3,200 monthly rent and Florida shop utilities, and the hour that looked like $85 of revenue is below cost. The unlicensed competitor is not recovering Chapter 440 or FICA; Gulf Breeze is required to. The B&F answer is to compute overhead, put burden in the labor rate, put rent and GL in the markup, print the license number on the advertisement, and let the unlicensed bid win the jobs you cannot perform legally at that price. Determining overhead is how a licensed HVAC contractor stays in business through a cooling season and a workers' compensation audit.