Contractor Hourly Rate Calculator

How to calculate your hourly rate as a contractor

1. Decide the owner pay you need

   Enter the salary you would have to pay someone to do your job — not whatever is left at year end. This is a cost the rate has to cover.

2. Add annual overhead

   Rent, insurance, vehicle, phone, software, tools, marketing, accounting. Use last year's books if you have them, or open the itemized fields and fill in what you know.

3. Add employee cost if you have staff

   Enter their burdened annual cost — wages plus employer payroll taxes, workers' comp and benefits — and the hours they bill in a year. Leave both blank if it's just you.

4. Enter weeks worked, hours per week and billable %

   Be honest about the billable share. Driving, estimating, call-backs and paperwork are hours you work but cannot bill.

5. Read the break-even rate

   This is the hourly price at which the year ends with every bill paid, your salary paid, and zero profit left in the business.

6. Set a target margin

   The default is 20%. The rate at that margin is the number to charge; the margin is what funds slow months, tool replacement and growth.

7. Check the sensitivity line

   The calculator recomputes the rate with billable hours ten points higher and lower. If your utilization guess is off, this is how far off your rate is.

What to include in your annual overhead

How do you calculate an hourly rate for a contractor?

Add up everything the business has to pay in a year — your salary, overhead, and any employees — then divide by the hours you can bill. That is the break-even rate. Divide it again by (1 − your target margin) and you have the rate to charge. Every other hourly-rate method is a version of this.

Here is a solo operator. Owner pay $75,000. Overhead $40,000. Total annual cost $115,000. They work 48 weeks at 40 hours, which is 1,920 hours, and about 65% of those are billable: 1,920 × 0.65 = 1,248 billable hours. Break-even rate = $115,000 ÷ 1,248 = $92.15 per hour. At a 20% margin the rate is $92.15 ÷ 0.80 = $115.18 per hour, and the business needs to bill $143,750 for the year.

The number that surprises people is not the rate; it is the 1,248. A full-time year is 2,080 hours (40 × 52). Nobody bills 2,080. Take out vacation and sick days, then take out every hour spent driving, quoting, buying material, fixing the truck and answering the phone, and the billable year for a one-person business is often a bit over half of the hours worked. If you calculate on 2,080 hours you will set a rate that is 40% too low and spend the year wondering why busy does not feel like profitable.

Why billable hours, not hours worked?

Because the customer only pays for the hours on their job. Every hour you spend on the business instead of a job — estimating, driving, ordering, invoicing, chasing payment — still has to be paid for, and the only place that money can come from is the rate you charge on the hours you do bill. Utilization (billable hours ÷ hours worked) is the single biggest lever in the whole calculation.

Same solo operator, same $115,000 of cost, three utilization guesses:

A ten-point swing in utilization moves the rate by roughly $12 to $17 an hour. That is why the calculator prints a sensitivity line under the results: if you are guessing at your billable share, you are guessing at your rate by that much. The fix is to measure it for a month — log every hour as billable or not — and then use the real number.

The other fix is to raise utilization. Fewer estimating trips that go nowhere (vet the customer first — see how to vet a customer before you quote), invoicing from the job site instead of at the kitchen table at night, and grouping supply runs all convert unbillable hours into billable ones without changing the rate.

How do employees change the rate?

An employee adds cost and adds billable hours, and the rate you need is the total cost divided by the total billable hours of everyone. The cost side has to be the burdened cost, not the wage. On top of wages the employer pays its share of Social Security and Medicare — 6.2% and 1.45% of wages, 7.65% combined, per IRS Topic 751 (the Social Security portion stops at the annual wage base, $184,500 for 2026) — plus federal and state unemployment tax, workers' comp at whatever rate your state and class code carry, and any health, retirement or paid-time-off benefits you offer.

For scale: across all private-industry employers, the Bureau of Labor Statistics measured benefits at $14.01 of a $46.60 average hourly compensation cost in March 2026 — about 30% of total compensation (BLS Employer Costs for Employee Compensation). Your number will differ, especially with workers' comp in a high-rate trade, so use your own payroll figures where you have them.

Example: one technician at $25 an hour, 2,080 paid hours, is $52,000 in wages. Employer FICA alone adds $52,000 × 0.0765 = $3,978. With unemployment tax, workers' comp and a modest benefit the burdened cost lands around $65,000 — plug in your real figure. That technician bills about 1,400 hours after training, travel and downtime. Add them to the solo operator above: total cost $115,000 + $65,000 = $180,000; billable hours 1,248 + 1,400 = 2,648; break-even $67.98/hr; at 20% margin $84.97/hr; revenue needed $225,000.

The per-hour rate went down because the owner's overhead is now spread across more billable hours. The revenue the business has to find went up by $81,250. Both are true, and the second one is the part that decides whether the hire works: if the extra 1,400 hours of work is not there, the rate has to go back up to cover the idle time.

Should you quote hourly or flat-rate?

Quote flat-rate where you can, but build the flat price from the hourly rate. A flat price is the estimated hours times the rate you just calculated, plus materials with markup, plus the specific costs of that job. The customer sees one number; you still know the hours underneath it. When a job runs long you eat it; when it runs short you keep it, which is the trade flat-rate pricing makes.

Hourly billing fits diagnostic work, service calls and anything where the scope will not hold still. Either way, the rate in this calculator is the labor line. Materials get their own markup — and markup is not margin, which is why we built the markup vs margin calculator to sit next to this one. The full estimate, with exclusions and a payment schedule, is covered in how to write a construction estimate.

Common mistakes when setting an hourly rate

• Copying the competitor down the road. Their overhead is not yours. A one-truck operator and a three-truck shop need different rates for the same work, and the one who copies the other has a rate that fits neither.
• Dividing by 2,080. Full-time hours are not billable hours. Use weeks actually worked × hours × billable %.
• Leaving out owner pay. If your salary is not in the cost, the rate cannot pay it.
• Forgetting the vehicle. Fuel, insurance, repairs and the replacement truck are real annual money — often the biggest overhead line for a solo trade.
• Forgetting self-employment tax. When you are the business, the combined Social Security and Medicare rate is 12.4% + 2.9% = 15.3% on your net earnings (rates per IRS Topic 751) — the owner-pay line needs to be big enough to pay it.
• Treating the break-even rate as the price. Break-even leaves zero for slow months, tool replacement or a bad-debt invoice. The margin is not greed; it is the reserve.
• Never re-running the numbers. Insurance renews, fuel moves, you add a helper. Run the calculator once a year and after any hire.

What if the rate is higher than what you charge today?

It usually is, the first time. Three ways to close the gap: raise the rate on new customers immediately and existing ones at the next job, cut unbillable hours so utilization climbs, or cut overhead you are not using. Most contractors find the first is easier than it looks — the customers who leave over a fair rate were the ones about to be the slowest payers anyway, and tighter payment terms do more for cash flow than a low rate ever did.

Full disclosure: TrustPro is our product. It's a contractor CRM with estimates, invoicing, scheduling and text follow-up, from $29/mo with a 14-day free trial and no credit card. The part that helps utilization is invoicing from the phone on site and automatic payment reminders, so the evening paperwork hours shrink. Details on the pricing page; the calculators on this site are free either way.

FAQ

• IRS Topic No. 751 — Social Security and Medicare withholding rates
• BLS — Employer Costs for Employee Compensation, March 2026 (released June 12, 2026)