Contractor Labor Rate Calculator
Find the fully burdened labor rate your service business needs to charge — after wages, payroll burden, non-billable time, overhead, and target profit margin.
Calculator Inputs
Calculator Results
Required Hourly Rate
Estimated required rate based on your inputs to achieve your 20% target margin.
Cost Breakdown
- Break-Even Rate (Fully Burdened Cost) $0.00
- Loaded (Burdened) Wage $0.00
- Loaded Cost / Billable Hr $0.00
- Overhead / Billable Hr $0.00
- Annual Billable Hours / Tech 0
The Cost of Idle Time
Higher utilization means a greater share of paid technician hours is billable. That spreads labor and overhead across more billable hours, reducing the hourly rate required to reach the same target margin.
| Billable Utilization | Required Hourly Rate |
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Put This Rate to Work
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Methodology
This calculator turns a technician's hourly wage into the rate your business needs to bill, in four stages. Each stage answers a question people commonly conflate with the others.
1. Wage → loaded (burdened) wage
Start with the technician's base wage, then add labor burden — the employer costs layered on top of every paid hour, such as payroll taxes, workers' compensation, and benefits. The result is what each paid hour actually costs you, before considering whether that hour was billable.
2. Loaded wage → loaded cost per billable hour
Not every paid hour is billable — travel, training, downtime, and admin time reduce billable utilization below 100%. We take the technician's full annual loaded labor cost (loaded wage × annual paid hours) and divide it only by the hours actually billed. This is the loaded cost per billable hour: the true cost of one hour of productive, billable work once the cost of paid-but-non-billable time is spread across it.
3. Overhead allocation
Total annual overhead — rent, software, office staff, insurance, marketing, and similar fixed costs — is divided by the combined billable hours of every technician, so each billable hour carries its fair share.
4. Break-even rate → target (billed) rate
Loaded cost per billable hour plus overhead per billable hour gives the fully burdened break-even rate — what you must charge just to cover cost, with $0 profit. Dividing that by (1 − target margin) gives the target hourly rate: the customer-facing rate that leaves your desired margin after every cost above is covered.
Worked example
Using this calculator's own default inputs — a $30/hr technician, 25% labor burden, 2,080 annual paid hours, 60% billable utilization, 3 technicians, and $150,000 annual overhead, targeting a 20% margin:
- Loaded wage: $30 × 1.25 = $37.50/hr
- Annual billable hours per technician: 2,080 × 60% = 1,248 hours
- Loaded cost per billable hour: ($37.50 × 2,080) ÷ 1,248 = $62.50/hr
- Overhead per billable hour: $150,000 ÷ (3 × 1,248 hours) = $40.06/hr
- Break-even rate: $62.50 + $40.06 = $102.56/hr
- Target hourly rate: $102.56 ÷ (1 − 20%) = $128.21/hr
These are the values the calculator above loads with by default — change any of the inputs and every number here updates to match.
Important distinctions
- Wage vs. labor cost
- Wage is what the employee is paid. Labor cost adds employer burden and accounts for paid-but-non-billable time — it is always higher than wage, and the gap grows as burden rises or utilization falls.
- Labor cost vs. billable rate
- Labor cost is what a billable hour costs you. The billable rate is what you charge the customer — it has to cover labor cost, overhead, and margin, not labor cost alone.
- Markup vs. margin
- Markup adds a percentage on top of cost:
cost × (1 + markup). Margin is the percentage of the final price that is profit:cost ÷ (1 − margin). This calculator uses margin — a 20% margin requires a larger price increase than a 20% markup on the same cost. - Paid hours vs. billable hours
- Paid hours are every hour you compensate a technician for. Billable hours are the subset actually invoiced to a customer. The gap between them — utilization — is one of the biggest levers on your required rate; see "The Cost of Idle Time" above.
This is also why simply doubling a technician's wage isn't a reliable way to set a billing rate: it ignores burden, utilization, and overhead entirely, and only happens to land near a defensible number for specific combinations of those variables.
Limitations
This is an estimation and decision tool. Actual accounting, tax, insurance, labor, and overhead treatment varies significantly by business and jurisdiction. Do not use this as a substitute for professional accounting, legal, or tax advice. Where this page shows specific products, that's a separate step after the rate is calculated — affiliate relationships never influence the rate itself. See our affiliate disclosure for details.
Frequently Asked Questions
What is a fully burdened labor rate?
It's the break-even rate shown above: loaded cost per billable hour plus your share of overhead, before any profit margin is added. It's "fully burdened" because it already reflects payroll burden, non-billable time, and overhead — not just the base wage.
What is "loaded cost per billable hour," and how is it different from an hourly wage?
Loaded cost per billable hour is the true cost of one billable hour of work — the "Loaded Cost / Billable Hr" figure above. An hourly wage is just what the employee is paid. The loaded cost is always higher, because it spreads burden and the cost of paid-but-non-billable time across only the hours that actually get invoiced. Note: in auto-repair and dealership fixed operations, "effective labor rate" usually refers to a different, revenue-side metric — actual labor revenue collected divided by hours billed — not a cost calculation like this one. If that's what you're looking for, this calculator isn't the right tool.
What does labor burden include?
In this calculator, labor burden is a single percentage you enter to represent employer costs layered on top of wage — typically payroll taxes, workers' compensation, benefits, and similar costs. 20–30% is a common range, but yours may be higher or lower depending on your benefits package, state, and insurance costs.
How does billable utilization affect the rate I need to charge?
Lower utilization means a smaller share of paid hours are billable, so the same annual labor cost and overhead get spread across fewer billable hours — raising the rate needed on each one. See "The Cost of Idle Time" above for how much a specific utilization change would affect your own numbers.
What's the difference between markup and margin, and which does this calculator use?
Markup is a percentage added on top of cost. Margin is the percentage of the final price that is profit. This calculator solves for margin — it divides your break-even cost by (1 − target margin) rather than multiplying it by (1 + markup) — because a stated "margin" almost always means margin on price, not markup on cost, and using the wrong one silently under-charges.
Should overhead be included in my labor rate?
If your billable rate is meant to cover the whole business — not just the field labor — then yes: rent, software, office staff, insurance, and marketing all have to be paid for by revenue from billable hours somehow. This calculator allocates overhead evenly across all technicians' billable hours; see the Overhead Allocation step above.
Why can't I just double my technician's wage to get a billing rate?
Doubling wage ignores burden, utilization, and overhead — three separate multipliers that don't move together. It can land close to correct by coincidence at specific combinations of those inputs, but it isn't derived from your actual costs, so it drifts wrong as soon as any of them change.