How do you calculate a contractor hourly rate?

Start with the burdened labor cost (base wage plus 30–50% for taxes, comp, insurance, and benefits). Add your overhead allocated per billable hour. Then divide by (1 − your target margin) so the rate is priced on margin, not marked up. That gives a rate that pays for the work, the business, and your profit.

Why is a contractor's rate so much higher than the wage?

Because the wage is only part of the cost. The billable rate also covers payroll taxes, workers' comp, insurance, benefits, and a share of overhead — plus profit. The gap between the wage and the rate is what keeps the business running.

What Should a Contractor Charge Per Hour? (How to Set Your Rate)

Q: What should a contractor charge per hour?

Your billable hourly rate should cover the fully burdened cost of the labor, plus a share of your overhead, plus your profit margin. A rough formula: billable rate = (burdened labor cost per hour + overhead per hour) ÷ (1 − margin). For a $30 wage, that often lands somewhere around $85–100 an hour once burden, overhead, and margin are included, though it varies widely by trade and market.

The fastest way to underprice your work is to set your rate off your wage. "I pay my guys $30, so I'll bill $50 and pocket the difference" leaves out almost everything that makes a business run. Your billable hourly rate has to cover three things: the real cost of the labor, a share of your overhead, and your profit. Here's how to build it.

The three layers of a billable rate

Burdened labor cost. Not the wage — the wage plus payroll taxes, workers' comp, insurance, and benefits, which add 30–50%. A $30 wage is really about $40.50 an hour.
Overhead per hour. Your office, truck, insurance, admin, and software, divided across your billable hours. It's real money the rate has to carry.
Profit margin. On top of covering cost and overhead, the rate has to leave a profit — priced as a margin, not a markup.

The formula

Billable hourly rate Rate = (burdened labor cost/hr + overhead/hr) ÷ (1 − margin)

A worked example

Take a $30/hour worker with a 35% burden and, say, $20/hour of overhead allocated, at a 30% margin:

Building a billable rate
Layer	Amount
Base wage	$30.00
Burdened labor cost (× 1.35)	$40.50
+ Overhead per hour	$20.00
Cost per hour	$60.50
÷ (1 − 30% margin)	—
Billable rate	$86.43

That's why a "$30 an hour" worker gets billed at eighty-plus — the rate is paying for the work, the business behind it, and a profit. Your exact number depends on your burden, your overhead, and your market, but the structure is always these three layers.

A note on hourly vs by-the-job

Most remodelers price whole jobs rather than billing pure hourly — it's usually a better deal for both sides. An hourly rate is most useful for time-and-materials work, small jobs, and add-ons. Either way, the underlying math is the same: burdened cost, plus overhead, priced on margin.

Let the estimate do the layered math

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Frequently asked

What should a contractor charge per hour?

Enough to cover burdened labor, a share of overhead, and profit: Rate = (burdened cost/hr + overhead/hr) ÷ (1 − margin). It varies by trade and market.

How do you calculate the rate?

Burden the wage (30–50%), add overhead per billable hour, then divide by (1 − margin) to price it on margin.

Why is the rate so much higher than the wage?

Because the wage is only part of the cost — the rate also carries taxes, comp, insurance, benefits, overhead, and profit.

Sources: labor burden 30–50% of base wage — CFMA / industry. Overhead-per-hour and rate figures are illustrative and depend on your business; not a quote.