How Much Should Contractors Charge for Labor? (Rates, Burden, and Examples)

If your labor pricing is off, nothing else in your estimate matters.

Contractors usually lose money in one of two ways:

• They charge “what the market charges” without knowing their real costs.
• They use their pay rate as their bill rate (example: paying a guy $30/hr and charging $35/hr).

To price labor correctly you need three numbers:

1. your fully burdened labor cost (wages + taxes + workers comp + benefits)
2. your overhead rate
3. your target profit

This guide gives you a clean formula plus examples so you can set rates that actually keep you profitable.

How much should contractors charge per hour?

Your billable rate must cover fully burdened wages + overhead + profit. It is not just the hourly wage you pay your employees.

Standard Billable Rates by Trade (2026 National Approx):

• Handyman: $75 - $125/hr
• Carpenter (Rough/finish): $95 - $150/hr
• Painter: $65 - $110/hr
• Electrician/Plumber: $125 - $225/hr
• General Contractor/PM: $100 - $180/hr (or Cost-Plus fee)

How to Calculate Your “Labor Burden” (True Cost)

The hourly wage is only ~70% of your real cost. The rest is Labor Burden. Without calculating this, you are underpricing every hour you sell.

Real Cost Formula: Hourly Wage + Taxes + Insurance + Benefits + Non-Billable Time (You can run the numbers for your own crew with our free labor cost calculator.)

Example: A $30/hr Carpenter actually costs you $42.50/hr

• Base Wage: $30.00
• FICA/Medicare (7.65%): $2.30
• FUTA/SUTA: $0.50
• Workers’ Comp (~15%): $4.50 (Varies heavily by trade)
• General Liability (~3%): $0.90
• Tools/Vehicle Allowance: $2.00
• Paid Time Off/Holidays: $2.30
• Total Burdened Cost: $42.50/hour

Formula: Setting Your Billable Rate

Do not guess. Use this formula to ensure every hour sold contributes to business growth.

The “Denominator Method” Formula:

(Burdened Labor Cost + Overhead per Hour) ÷ (1 - Net Profit Margin)

Worked Example:

1. Burdened Cost: $42.50/hr
2. Overhead: $30.00/hr (Rent, trucks, software divided by total billable hours)
3. Target Net Profit: 15% (0.15)

Calculation: ($42.50 + $30.00) ÷ (1 - 0.15) $72.50 ÷ 0.85 = $85.29 per hour (Break-even is $72.50)

Why “Billable Hours” Kill Profitability

You pay employees for 40 hours (2,080/year), but you can only sell about 30 hours (1,500/year).

Lost time (“Non-Billable”) includes:

• Driving to job sites (unbilled)
• Material runs
• Tool setup/breakdown
• Team meetings and training

Correction: If you divide your overhead by 2,080 hours, you will underprice. Always divide annual overhead by BILLABLE hours (approx 1,500/year per tech).

The mistake: charging hourly when you should be project pricing

Most profitable contractors price:

• labor + materials + subs + overhead + profit

…as a project. Hourly billing tends to cap your upside and reward inefficiency.

A good hybrid:

• estimate time internally
• price as a project
• track hours to improve future accuracy

Quick checklist

• Do I know my burdened labor cost?
• Do I know my overhead per billable hour?
• Am I building profit into the rate using the denominator method?
• Am I using the right contractor markup calculator to convert margin goals into markup?
• Am I charging differently for high-risk work?

If you want to generate clean estimates fast and keep labor pricing consistent across projects:

Try EstimationPro free

FAQs

What’s a good labor burden percentage?

Many contractors land between 25% and 40%, but workers’ comp can push it higher depending on trade/state.

Why is my calculated rate higher than competitors?

Often because competitors are not covering overhead (or they’re underpaying themselves). It can also mean your overhead is too high or your billable hours are too low.

Should I charge different rates for different work?

Yes. Higher risk, tighter schedules, and more complexity should be priced higher.

Is it better to charge hourly or per project?

Per project is usually better for profitability and simplicity, as long as your estimating is disciplined.

How do I handle travel and materials runs?

They are real labor. Either include them in project pricing or build them into overhead/billable hour assumptions.