Hourly Rate Calculator

How to calculate your hourly rate as a contractor

Your hourly rate is the pay you want, plus the taxes and benefits on that pay, plus a year of overhead, divided by the hours you can actually bill, then lifted for profit. With the calculator's defaults that lands at $80 an hour. Here is the chain.

1. Pick your owner pay before personal tax. What you want to pay yourself for the year, after the business has paid its bills. The default is $60,000, an example, not a benchmark.
2. Add a reserve. The default adds 25% of owner pay for tax and benefits budgeting. It is not a tax calculation. IRS Topic 554 explains that self-employment tax generally applies to 92.35% of net earnings, with thresholds and limits.
3. Add up overhead. Truck, insurance, tools, phone and software, the accountant. The five default lines total $20,000. Replace them with last year's real numbers.
4. Count billable hours honestly. Weeks worked × hours a week × the share you can bill. 48 × 45 × 65% is 1,404 hours. Not 2,080.
5. Divide, then add margin. Cost per billable hour is $67.66. Divide by one minus a 15% margin and round up: $80 an hour.

Hourly rate = (pay + taxes and benefits + overhead) ÷ billable hours ÷ (1 − margin)

Divide, don't multiply. $67.66 × 1.15 is $78, which is a 13% margin wearing a 15% name tag. $67.66 ÷ 0.85 is $79.60, rounded up to $80.

Worked example: a solo contractor who wants $60,000 owner pay

A handyman working alone, 48 weeks a year, 45 hours a week, who can bill 65% of that time and wants $60,000 of owner pay before personal tax needs $80 an hour. Hypothetical numbers, real math.

Of each $80 hour, $42.74 is your pay, $10.68 is tax and benefits, $14.25 is overhead and $12.33 is profit. Spread across all 2,160 hours you worked, the effective figure is $52 an hour, which is the number to remember the next time someone says $80 sounds like a lot.

Billable hours: the number that moves your rate the most

Billable share moves the rate more than anything else you type in, because every unpaid hour gets paid for by a billed one. Same costs, same pay, three different shares:

What isn't billable: the site visit to quote a job you might not get, the drive between jobs, the supply run when the customer picked a different faucet, the evening on invoices. The 65% default is a planning example. Guessing your share? Track one month before you price on it.

The lever runs both ways. Writing the estimate on site and letting software chase the invoice turns admin hours back into billable ones, and the effect depends on your starting share and costs.

Overhead you forget to charge for

Overhead is $14.25 of every billable hour at the defaults, and none of it shows up on a job. The truck runs whether or not you're on a paid call. So does the insurance.

These are assumptions, not a survey. Pull last year's bank statements, sort every business expense that isn't job materials into one of the five lines, and type the totals in.

Loaded labor rate calculator for employees

An employee's hour costs more than the wage. Flip the tool to "Loaded labor rate" and a $22 an hour worker loads to $26.08 per paid hour, $34.78 per billable hour, and a $62 billing rate. Same defaults, hypothetical crew.

The burden is the 12%: the employer half of Social Security and Medicare (7.65%), unemployment, and workers comp, which runs from a couple of percent for office staff to well into the teens for roofers. Check your comp policy and adjust. And since the employee is billable 75% of the time in this example, the cost per billable hour is the number you price with, not the cost per paid hour.

Common questions about contractor hourly rates