Question 1

How do I calculate my labor rate?

Accepted Answer

Proper labor rate calculation ensures profitability: STEP 1 - CALCULATE LOADED LABOR COST: Start with base wage (e.g., $25/hour). Add: Payroll taxes (7.65% FICA), workers comp insurance (varies by trade, 10-30% of wages), general liability insurance (allocated portion, ~3-5%), health insurance/benefits (if provided, $200-$800/month per employee), paid time off (add 8-10% for vacation/sick/holidays). Example loaded cost: $25 base + $1.91 FICA + $5 workers comp + $1.25 GL + $4 benefits + $2.50 PTO = $39.66/hour true cost. STEP 2 - ACCOUNT FOR BILLABLE TIME: Employees aren't billable 100% of time - account for drive time, equipment maintenance, training, weather delays, job prep. Typical billable: 75-85% of hours. If employee costs $39.66/hour but only billable 80% of time, effective cost = $39.66 ÷ 0.80 = $49.58/hour. STEP 3 - ADD OVERHEAD ALLOCATION: Determine overhead per labor hour (office, trucks, tools, insurance, marketing) - typically $10-$25/hour for small contractors. Add to effective labor cost. STEP 4 - ADD PROFIT: Apply desired profit margin (15-25%). Final billable rate = (Loaded Cost ÷ Billable %) + Overhead + Profit.

Question 2

What is "loaded labor cost" and why does it matter?

Accepted Answer

Loaded labor cost represents true total cost per employee hour, far exceeding base wage. COMPONENTS BEYOND BASE WAGE: PAYROLL TAXES (7.65%): Employer FICA (Social Security 6.2% + Medicare 1.45%). $25/hour wage = $1.91/hour additional. FEDERAL/STATE UNEMPLOYMENT: FUTA and SUTA vary by state, typically 0.6-6% of wages. Average $0.75-$1.50/hour. WORKERS COMPENSATION INSURANCE: Varies dramatically by trade and state. Office work: 0.5-2% of wages. Carpentry: 10-20%. Roofing: 25-40%. Can add $2.50-$10/hour depending on risk. GENERAL LIABILITY INSURANCE: Portion allocated per labor hour, typically 3-5% of wages = $0.75-$1.25/hour. HEALTH INSURANCE/BENEFITS: If providing, $400-$1,000/month per employee = $2-$6/hour. PAID TIME OFF: Vacation, sick, holidays typically 8-12% of wages = $2-$3/hour. TRAINING: Ongoing education, safety training = $0.50-$1.50/hour allocated. EXAMPLE CALCULATION: $25/hour base wage becomes: $25 + $1.91 FICA + $1 unemployment + $5 workers comp + $1 GL + $3 health + $2.50 PTO + $1 training = $39.41/hour loaded cost. Multiplier of 1.58× base wage. WHY IT MATTERS: If only considering base wage when bidding, you're losing $14.41/hour on every employee hour. 100 hours labor = $1,441 loss. Must charge based on LOADED COST not base wage to stay profitable. INDUSTRY STANDARD: Loaded labor cost typically 1.4-1.8× base wage. Lower multiplier for trades with low workers comp (1.4-1.5×). Higher for dangerous trades with high workers comp (1.6-1.8×). Never charge less than loaded cost or you lose money on every labor hour worked.

Question 3

How do I price my own labor as a business owner?

Accepted Answer

Owner labor pricing creates confusion - you're both worker and business owner requiring two separate compensations. OWNER LABOR RATE: When working on jobs yourself, charge same billable rate as you'd pay employee to do same work. If you'd hire carpenter at $65/hour billable, charge $65/hour for your carpentry time. This covers your time cost plus overhead allocation for that time. OWNER SALARY: Separately, pay yourself a market-rate salary for business management functions (estimating, scheduling, purchasing, client relations). This comes from business profits, not job budgets. Typical: $60,000-$120,000 salary depending on business size and market. TWO BUCKETS: Labor rate reimburses you for actual work time on jobs (your "employee" function). Salary compensates management and ownership (your "business" function). Profit is third bucket - return on business risk and investment. COMMON MISTAKE: Not charging for owner labor or undercharging. "I don't need to pay myself on this job." Then you work for free and business shows false profitability. If you worked 100 hours at $65/hour = $6,500, that's real cost whether paid employee or yourself. BIDDING JOBS: Include your labor at full rate when estimating. If job requires 40 hours of your time at $75/hour, bid includes $3,000 labor cost. Plus overhead allocation. Plus profit margin. TRACKING: Log your hours by job like any employee. Allows job costing accuracy and understanding true profitability. RESULT: Proper owner labor pricing shows true job costs, allows accurate comparison to hiring employees, ensures you're compensated fairly for all work (management + labor), reveals which jobs are actually profitable. Small contractors often "stay busy going broke" by not charging appropriately for their own time.

Question 4

How do I handle overtime and prevailing wage requirements?

Accepted Answer

Overtime and prevailing wages significantly impact labor costs and must be properly bid. OVERTIME LAWS: FEDERAL (FLSA): Non-exempt employees earn 1.5× regular rate for hours over 40 per week. Applies to most construction workers. Some states require daily overtime (California: 1.5× over 8 hours/day, 2× over 12 hours/day). COST IMPACT: $25/hour employee working 50 hours weekly: 40 hours × $25 = $1,000, 10 hours × $37.50 = $375, total $1,375 = $27.50/hour average. Plus all labor burdens on higher overtime rate (workers comp, etc.). BIDDING OVERTIME: If project requires long weeks or tight deadline necessitating overtime, bid using blended rate accounting for OT. Don't assume 40-hour weeks if schedule demands more. Include OT premium in labor costs. EXAMPLE: Job needs 200 hours in 4 weeks (50 hours/week). Bid at $27.50/hour effective rate plus burdens, not standard $25/hour rate. PREVAILING WAGE (PUBLIC PROJECTS): Federal and state-funded projects require paying "prevailing wage" rates (typically union scale). Davis-Bacon Act (federal), state prevailing wage laws vary. Rates often 50-100% higher than market rates. California carpenter prevailing wage: $50-$65/hour vs. $30-$40 market rate. Must pay specific fringe benefits or cash equivalent. Certified payroll reporting required weekly. BIDDING PREVAILING WAGE: Use published prevailing wage rates for each classification. Include all mandated fringes ($15-$30/hour additional in benefits or cash). Add typical labor burdens (workers comp, FICA, etc.) on top. Example: Prevailing wage $55/hour + $25 fringes + $12 burdens = $92/hour total labor cost. COMPLIANCE: Detailed recordkeeping required (certified payroll). Penalties for non-compliance are severe (back pay, fines, debarment). Use specialized payroll company familiar with prevailing wage. STRATEGY: Many small contractors avoid public prevailing wage work due to complexity and reduced margins. Others specialize in it once systems are in place. Higher revenue per job but more paperwork and compliance risk.

Labor Rate Calculator

Labor Cost Details

Labor Burden

Business Costs

Typical Burden Rates

Billable Hours

Frequently Asked Questions

How do I calculate my labor rate?

What is "loaded labor cost" and why does it matter?

How do I price my own labor as a business owner?

How do I handle overtime and prevailing wage requirements?