How do I calculate my fully-loaded labor rate?

Add your target take-home pay to your annual business overhead, divide by your realistic annual billable hours (billable hours per week × weeks worked), then divide by one minus your profit margin. The result is the rate each billable hour must earn to cover your pay, overhead, and profit — usually $75–$150 for solo trade contractors.

Why is my fully-loaded rate higher than my wage?

Because it carries your whole business, not just your paycheck. Each billable hour has to cover the truck, insurance, tools, software, slow weeks, and the unbillable hours you spend quoting and invoicing — plus a profit margin. Spread across the limited number of hours you can actually bill, that pushes the rate well above your personal wage.

How often should I recalculate my labor rate?

At least once a year, and any time your costs change noticeably. Overhead creeps up — insurance, fuel, tools, software — and a rate you set a few years ago is almost certainly too low now. Recalculating annually keeps your pricing anchored to what the business actually costs to run today.

How to Calculate Your Fully-Loaded Labor Rate

What a fully-loaded labor rate really means

When most contractors think about their hourly rate, they think about what they want to earn per hour. That number is your wage, and pricing off it is how you end up busy and broke.

Your fully-loaded labor rate is different. It is the rate each billable hour has to bring in so that, after you pay for everything it takes to put you on that job, there is still your wage and a profit left over. It carries three things, not one:

Your pay — what you actually want to take home.
Overhead — the truck, fuel, insurance, licensing, tools, phone, software, and the unbillable admin hours.
Profit — a margin so the business earns more than a wage and can absorb slow weeks.

Price off the wage alone and the overhead comes straight out of your pocket. That is why so many contractors feel like the money disappears even when they are fully booked.

The formula and a worked example

The calculation is simple once you have realistic numbers:

Fully-loaded rate = (target pay + annual overhead) ÷ annual billable hours, then ÷ (1 − profit margin)

The trap is in the billable hours. You might work 2,080 hours a year, but you cannot bill all of them — driving, quoting, invoicing, ordering, and admin are unbillable. Realistically a solo contractor bills 25–35 hours of a 40-hour week, so 1,200–1,700 billable hours a year is normal.

Worked example. Say you want $70,000 take-home, your overhead is $40,000 a year, and you bill 1,500 hours. Break-even is ($70,000 + $40,000) ÷ 1,500 = $73.33/hour. Add a 15% profit margin and your rate is about $86/hour. If you had priced off a $35/hour "wage," you would have been losing money on every single hour.

You can run your own numbers instantly with the contractor hourly rate calculator.

Using your rate to price and check jobs

Once you have your fully-loaded rate, use it in two places.

First, when pricing: value the labor in every quote at this rate, not your wage, then add materials and your margin. See How to Price a Job as a Contractor.

Second, when checking actuals: after a job, multiply the real hours by this same rate to find the true labor cost, and compare it to what you quoted. This is where labor creep shows up — the two hours you went over at $86 each is $172 off the margin, and it is invisible unless you measure it.

Fieldpaid prices labor at your set rate and compares quoted hours to actual hours on every job, so you can see whether your rate is holding up in the real world or quietly being eroded. Recalculate the rate at least once a year — overhead creeps up, and a rate you set three years ago is almost certainly too low now.

How to Calculate Your Fully-Loaded Labor Rate (Stop Underpricing Your Time)