How Much Should a Contractor Charge Per Hour? (The Fully Burdened Rate Formula)

July 31, 2026 - Most contractors set their hourly rate the same way: look at what the guy down the road charges, knock a few dollars off or add a few on, and hope it works out. Then at tax time the accountant delivers the news: you worked 2,600 hours and made less than your best employee.

The problem is almost never the wage. It is that the rate was built on the wage instead of the fully burdened cost, and billed as if every hour of the year were billable. This guide walks through the actual formula, with a worked example you can copy with your own numbers.

Quick answer: Charge per hour by working up from cost, not sideways from competitors. Take the true hourly cost of a crew member (wage plus 25 to 40% burden for payroll taxes, workers comp, insurance, and benefits), add your overhead per billable hour, then apply your target margin. A $30/hour employee typically costs $38 to $42 fully burdened; add overhead and margin and the billable rate lands between $75 and $125+ per hour depending on trade and market. If your rate is less than roughly 2.5 times the base wage, you are probably losing money on labor.

Why the wage is the wrong starting point

An employee who earns $30 an hour does not cost $30 an hour. Before they swing a hammer, you also pay:

Total burden in construction typically runs 25 to 40% on top of the wage, and high-risk trades can exceed that on workers comp alone. So the $30/hour employee really costs $38 to $42 per hour. Any rate built on $30 starts every job in a hole.

To get your burden number: add up one employee's total annual employment cost (wages plus every item above), then divide by their annual work hours. Do it once with real numbers from your books; it takes 20 minutes and most contractors are surprised.

The billable hours trap

The second silent killer: a full-time year is 2,080 hours, but nobody bills 2,080 hours. Subtract holidays, vacation, sick days, weather, shop time, drive time between jobs, estimates, and callbacks, and a realistic field employee bills 1,400 to 1,700 hours a year.

That matters because your overhead has to be recovered over billable hours only. If your overhead is $120,000 a year and you assume 2,080 billable hours per person across a 3-person crew, you will recover $19 per hour. At a realistic 1,500 hours each, the true number is nearly $27. That gap, multiplied across every hour of the year, is where "busy but broke" comes from.

The formula, worked end to end

Here is the whole calculation for a one-crew remodeling outfit:

Step 1  Burdened labor cost
        $30.00 wage x 1.32 burden               =  $39.60 / hr

Step 2  Overhead per billable hour
        $120,000 annual overhead / (3 crew x 1,500 billable hrs)
                                                 =  $26.70 / hr

Step 3  Break-even rate
        $39.60 + $26.70                          =  $66.30 / hr

Step 4  Apply target margin (say 35%)
        $66.30 / (1 - 0.35)                      =  $102.00 / hr

That crew must bill about $102 per labor hour to hit a 35% gross margin. Not because the market says so, but because the math does. If the local market will not bear $102, you now know exactly which lever to work on (overhead, crew efficiency, or job mix) instead of quietly eating the difference.

Two notes on the margin step:

• Divide by (1 - margin). Do not multiply by 1.35; that is markup, and a 35% markup only yields a 26% margin. The difference compounds on every invoice.
• Overhead means everything that is not on a job: trucks, fuel, insurance, phone, software, advertising, your office time, the shop. If you have never totaled it, your rate is a guess by definition.

What contractors actually charge

For calibration, typical billed labor rates in 2026 for established, insured contractors in the U.S.:

Ranges swing with region and market position. Use them to sanity-check your formula result, never to replace it: a rate copied from a table carries someone else's overhead and someone else's margin.

From hourly rate to prices clients accept

Knowing your rate is half the job; the other half is packaging it. Clients push back hard on "$102 an hour" and rarely blink at "$850 to install four interior doors," even when the second number is built from the first.

That is the argument for converting your hourly rate into flat prices for your common tasks: rate times realistic task hours, plus materials, rounded to a clean number. Store those in a price book and quoting stops being arithmetic at 9 pm. We wrote a full guide to that here: How to Build a Contractor Price Book.

And if you want a fast starting point for your trade, our free What Should I Charge? tool gives current rate benchmarks by trade, and the profit margin calculator shows what any rate actually nets you after costs.

Signs your current rate is too low

• You are booked solid months out and still tight on cash. Full calendar plus empty account is the classic underpricing signature, and it usually means raise prices, not add jobs.
• Your rate has not changed in two-plus years. Insurance, materials, and wages all moved; a static rate quietly shrank your margin every year.
• You win nearly every bid. A healthy close rate for most trades is roughly 30 to 50%. Winning 90% means the market would have paid more.
• You cannot say what your overhead per billable hour is. Then the margin in your rate is an assumption, not a number.

Frequently asked questions

How much should a general contractor charge per hour?
Most established GCs bill $75 to $150 per labor hour depending on region and trade mix, but the right number comes from the formula: burdened labor cost plus overhead per billable hour, divided by (1 minus target margin). Two GCs on the same street can have honestly different correct rates.

What is a fully burdened labor rate?
The true hourly cost of an employee: base wage plus employer payroll taxes, workers comp, liability insurance, benefits, and paid nonproductive time. In construction it typically runs 25 to 40% above the wage, so a $30/hour employee costs roughly $38 to $42 per hour.

How many billable hours should I assume per employee?
1,400 to 1,700 per year for a full-time field employee, not 2,080. Holidays, weather, drive time, shop time, and estimating all come out of the billable total, and overhead must be recovered over the hours you can actually invoice.

Should I tell clients my hourly rate?
Usually no. Quote flat, itemized prices for defined scopes instead. Hourly rates invite line-by-line negotiation and make you cheap to compare; flat prices get judged on value and let your efficiency work for you instead of against you.

How often should I raise my rates?
Review annually at minimum, because burden and overhead rise every year even when you change nothing. Small regular increases (3 to 6%) go almost unnoticed; a 25% correction after five frozen years is the raise clients fight.

Turn your real rate into ready-to-sign proposals

Takeoff Convert prices every estimate from your own price book, built on your real labor rate and margins. Describe the job in plain English and get an itemized, client-ready proposal your client can e-sign, in about a minute, priced the way the math says, every time.

Your first proposal is free, no credit card required. Stop guessing at the most important number in your business.