Free Labor Rate Calculator

Your labor rate is what you charge for an hour of work. It has to pay for much more than the wage.

An hour on a job carries the employer’s share of payroll taxes, workers’ compensation, liability insurance, the truck that got the crew there, the tools in the truck, and the phone and software that booked the job. It also has to carry the hours nobody pays for directly: driving between jobs, picking up materials, writing estimates, returning calls and the jobs you quoted but didn’t win.

If your rate only covers the wage, all of that comes out of your pocket. That’s why a rate that sounds high to a client is often barely enough for the contractor.

The calculator builds the rate in two steps, the same way BuildWell prices labor on every estimate.

1. Your real cost per hour is the wage plus overhead: wage × (1 + overhead %). With a $30 wage and 100% overhead, that’s $30 × 2 = $60.
2. The rate to charge is that cost plus your markup: cost × (1 + markup %). With a 20% markup, $60 × 1.2 = $72 an hour.

The overhead percentage is your yearly overhead divided by your yearly wages. If the business spends $60,000 a year on overhead and pays $60,000 in wages, overhead is 100%: every dollar of wage brings a dollar of overhead with it.

The markup is your profit. Keep it separate from overhead, so you can see what the business really earns on an hour.

A crew member at $30 an hour

$30 wage, 100% overhead, 20% markup: $30 × 2 × 1.2 = $72 an hour. On an 8-hour day billed in full, that’s $576, of which $240 is wage, $240 is overhead and $96 is profit.

A leaner shop

A contractor working out of a home office with a paid-off truck works out overhead at 75%. With a $25 wage and a 15% markup: $25 × 1.75 = $43.75 an hour of cost, and $43.75 × 1.15 = $50.31 an hour.

Working out your overhead percentage

Add up a year of overhead, then divide by a year of wages.

Wages for the year: $52,000. Overhead: $39,000 ÷ $52,000 = 75%.

Those numbers are only an example. Your own year is what counts.

The rate to charge per hour with a 20% markup.

Look at how much overhead moves the rate. At a $30 wage, the difference between 50% and 125% overhead is $27 an hour. Guessing at overhead is the fastest way to be busy and broke.

The rate only works if enough hours get billed. A full-time year is 2,080 paid hours, 40 a week for 52 weeks, but holidays, rain days, driving, estimating and supply runs all come out of it.

Say 1,560 of those hours, three quarters, end up on an invoice. A $30 wage costs $62,400 a year, and spread over 1,560 billed hours it’s $40 per billed hour before any other overhead. If you price as if every paid hour is billed, you’ve under-priced every hour by a quarter.

There are two ways to handle it, and either works. Count the unbilled wages as overhead, which raises the overhead percentage, or divide the year’s costs by billable hours instead of paid hours. Don’t do both, or you’ll count the same hours twice.

Overhead is every cost of being in business that isn’t a specific job’s materials or wages.

• Payroll costs: the employer’s share of Social Security and Medicare (7.65% of wages), federal and state unemployment taxes, and workers’ compensation insurance, which depends on your state and trade.
• Insurance: general liability, commercial auto and any bonds your license requires.
• Vehicles: payments or depreciation, fuel, maintenance, registration.
• Tools and equipment: purchases, repairs, replacement of what wears out or walks off.
• Office: phone, internet, software, bookkeeping, licenses, marketing.
• Unbilled time: a 40-hour week is 2,080 hours a year, but not all of them are billable. Driving, estimating and buying materials are paid hours that no client pays for directly. If you pay wages for them, they belong in overhead.

If you work alone, do the same exercise with your own business costs. Use what you’d pay someone else to do your job as the wage; your take-home pay is that wage plus the markup.

Starting from what competitors charge. Their overhead isn’t yours. Start from your costs and check against the market afterwards.

Forgetting unbilled hours. If a third of the week goes to driving and estimating, the other two thirds have to pay for all of it.

Counting overhead twice. If overhead is in the labor rate, don’t add it again as a line on the estimate or as a fixed cost in your margin math.

One rate for every trade. An electrician, a painter and a helper cost different amounts. Rate each wage level, or use a blended rate for a typical crew and say so.

Never updating. Insurance renewals, a new truck or a raise change the numbers. Recalculate at least once a year.

For hourly work, the rate is the price. For fixed-price work, it’s the engine underneath: estimate the hours, multiply by the rate, add materials with your markup. The job cost calculator puts the pieces together.

Fixed prices protect you when the crew is efficient and expose you when the job runs long. Keep track of planned against actual hours, and adjust the hours you plan for each kind of work.

BuildWell starts every estimate from the median wage for each trade in your metro area, published by the Bureau of Labor Statistics, then adds your overhead and labor markup. Overhead starts at 100% until you set your own in Pricing settings. Every line’s hours and rate can be changed on the estimate.