- Spread your costs over the hours customers pay for, not the hours you pay for. That one change moves most rates the most.
- Wages are only part of an hour's cost. Payroll taxes, workers' comp, benefits, days off and drive time all ride on top.
- Profit is a share of the price, so divide the break-even rate by one minus the profit, never add it on top.
How to calculate your labor rate
A labor rate has to pay for three things: the people, the business around them, and a profit. The trick is to divide all of it by the hours a customer actually pays for.
The calculator works in six steps:
- Paid hours a year. Hours a week × 52. At 40 hours, that is 2,080.
- Hours at work. Take off paid days off. Ten days at 8 hours leaves 2,000.
- Billable hours. Take off the part of each day no customer pays for. Two unbilled hours in an 8-hour day leaves 75%, so 1,500 billable hours.
- Labor cost. Wage × all paid hours × (1 + payroll taxes and comp + benefits).
- Break-even rate. (Labor cost + overhead) ÷ billable hours.
- Your rate. Break-even ÷ (1 − profit share).
Worked through with the calculator's starting numbers: one tech at $30 an hour, 40-hour weeks, 10 paid days off, 2 unbilled hours a day, 7.65% payroll taxes, no benefits, $90,000 of overhead and 15% profit.
| Step | Math | Result |
|---|---|---|
| Paid hours | 40 × 52 | 2,080 |
| Hours at work | 2,080 − 10 × 8 | 2,000 |
| Billable hours | 2,000 × 6 ÷ 8 | 1,500 |
| Labor cost | $30 × 2,080 × 1.0765 | $67,174 |
| Break-even rate | ($67,174 + $90,000) ÷ 1,500 | $104.78 |
| Rate with 15% profit | $104.78 ÷ 0.85 | $123.27 |
A $30 wage turns into a $123.27 rate, about 4.1 times the wage, before workers' comp and benefits are added. Most of that gap is overhead spread over one person's billable hours. Add a second tech with the same overhead and the rate drops to $87.98. With three it is $76.21.
Billable hours: the number most rates get wrong
You pay for every hour on the clock. Customers pay for the hours on their job. The hours in between are real costs: driving between calls, loading the truck, the supply house run, warranty callbacks, estimates that do not close, paperwork and training.
If you divide your costs by 2,080 paid hours, you price as if every one of those hours gets billed. Then the rate looks fine on paper and the year comes up short.
Here is how the unbilled hours change the rate with everything else at the starting numbers:
| Unbilled hours a day | Billable share | Billable hours a year | Rate per billable hour |
|---|---|---|---|
| 1 | 87.5% | 1,750 | $105.66 |
| 1.5 | 81.3% | 1,625 | $113.79 |
| 2 | 75% | 1,500 | $123.27 |
| 2.5 | 68.8% | 1,375 | $134.48 |
| 3 | 62.5% | 1,250 | $147.93 |
Every half hour a day of unbilled time adds roughly $8 to $14 to the rate. That is why tight routing and fewer return trips matter as much as the price itself.
Some unbilled time is worth keeping. Training makes techs faster and better at diagnosis. Estimates that close turn into work. The goal is not zero unbilled hours. It is knowing the number, pricing for it, and cutting the waste in it: the second trip for a forgotten part, the callback from a rushed job, the half hour lost to a bad route.
If you bill drive time separately, as a trip charge on every call, you can lower the unbilled hours in the calculator to match. Just do not count the same time twice.
Payroll taxes, workers' comp and benefits
Every dollar of wages costs you more than a dollar. The calculator splits the extra into two lines so you can match them to your own books.
| Cost on top of wages | What is in it | Starting value |
|---|---|---|
| Payroll taxes, unemployment and workers' comp | Employer Social Security 6.2% and Medicare 1.45%, federal unemployment (0.6% on the first $7,000 of each person's wages after the usual credit), your state unemployment rate, your workers' comp rate | 7.65% of wages, then add yours |
| Health insurance and retirement | What you pay toward health, dental and life cover, and any 401(k) match or pension | 0%, put in yours |
The 7.65% is the part every employer pays at the same rate: Social Security at 6.2% (on wages up to $184,500 a person in 2026) and Medicare at 1.45%, from the IRS. Federal unemployment is 6.0% of the first $7,000 of each person's wages, or 0.6% after the full 5.4% credit for paying state unemployment on time. That is $42 a person a year at most.
The rest depends on you. State unemployment rates differ by state and by your claims history; your state sends you a rate notice each year. Workers' comp depends on your state, the class code for the work and your claims. Benefits depend on the plan you offer. Add each as a share of wages: yearly cost ÷ yearly wages.
Paid days off are not a percentage here on purpose. The calculator counts them as hours that are paid but not worked, which spreads their cost over the billable hours instead.
Overhead: what it is and how it lands on each hour
Overhead is everything the business pays for that is not tied to one job: trucks and fuel, insurance, the shop or office, phones, software, office and dispatch pay, advertising, accounting, licences, tools that wear out. If you are the owner and do not work in the field, your pay is overhead too.
The calculator spreads all of it evenly over the billable hours. With $90,000 of overhead and 1,500 billable hours, each billed hour carries $60 of overhead before a wage is paid. That is the biggest single line in the starting example, at 48.7% of the rate.
Two ways to bring it down per hour: more billable hours across the same overhead (more people, less unbilled time), or less overhead. Raising the rate is the third way.
Leave materials and parts out of overhead. They are priced on each job with a markup. The markup calculator builds a parts table for that.
Adding profit the right way
Profit is what is left for the business after everyone and everything is paid. It pays for growth, the bad months, a new truck without a loan, and the owner's return on the risk.
Because profit is a share of the price, you divide. A break-even rate of $104.78 with 15% profit is $104.78 ÷ 0.85 = $123.27. Adding 15% on top would give $120.50, and the profit on that is only 13%.
How much profit to aim for is your call. Start from what the business needs: savings for slow months, money for the next vehicle, and a fair return. Then check the rate against what the work sells for in your area. If the rate you need is far above the market, the fix is usually in billable hours or overhead, not in a smaller profit.
When to recheck your rate
Run the calculator again when any of these change:
- A raise for your techs, or a new hire at a different wage
- A new truck, a bigger shop, a new office person, or a jump in insurance
- A change in how many hours get billed: a new service area with longer drives, or tighter routing that cuts them
- A change in health insurance or retirement costs at renewal
- At least once a year, with last year's real numbers
When the rate goes up, update the price book and the estimate templates the same day, so every new quote uses it.
Hourly rate vs flat-rate pricing
Some contractors bill by the hour. Others quote a flat price per task or per job. Both need the same rate underneath.
- Time and materials. Hours on the job × your rate, plus parts at your markup. Fair when the work is hard to predict. The customer carries the risk of a slow job.
- Flat rate. A fixed price per task: honest task time × your rate + parts at your markup, rounded. The customer knows the price up front. You carry the risk of a slow job and keep the gain of a fast one.
Either way, the rate from this calculator is the number that turns hours into dollars. A flat-rate price book built from an old or guessed rate will be short on every line.
Labor rates by trade
The math is the same for every trade. The inputs are not. Wages differ, and so do the unbilled hours. The Bureau of Labor Statistics national median wages for May 2025 are:
| Trade (SOC code) | Median hourly wage | Rate on the starting numbers |
|---|---|---|
| HVAC mechanics and installers (49-9021) | $29.33 | $122.10 |
| Electricians (47-2111) | $30.38 | $123.94 |
| Plumbers, pipefitters and steamfitters (47-2152) | $30.67 | $124.45 |
The rates in that table use the same overhead, hours and profit for all three, so they differ only by the wage. Your own overhead and billable hours will move the answer far more than the trade does. The trade pages start from that trade's median wage and talk through what changes:
Once you have the rate, put it to work on every estimate you send. Koira keeps the hours and the rate on each line, so you can see what a job pays per hour before it goes out.
Last checked October 8, 2026.