Why the wage is the smallest part of the answer
Take a helper paid $30 an hour, 40 hours a week, all year. That is $62,400 in wages. The employer's share of Social Security and Medicare adds 7.65 percent ($4,773.60). Workers' comp at 6 percent adds $3,744. Health insurance and other benefits at $6,000 a year bring the total to $76,917.60, which is $36.98 for every hour you pay for, 23 percent above the wage.
The bigger jump comes from billable hours. Nobody bills 40 hours a week. Drive time, supply runs, estimates, callbacks and rain days all get paid and none of them get invoiced. At 32 billable hours a week the same helper costs $46.22 for every hour you can charge for. Price labor at $45 and you lose money on every hour before the truck payment is even counted.
From labor cost to the rate on your invoice
Add your overhead per billable hour (the truck, insurance, tools, software and phone, divided by a year of billable hours) and then set the margin you want. With $20 of overhead per billable hour and a 20 percent margin, that helper's hour needs to be billed at $82.78. The margin is divided out, not added on: $66.22 divided by 0.8, not $66.22 plus 20 percent. The difference is the gap between markup and margin, and it is where a lot of trade pricing quietly goes wrong.
Workers' comp is the number to get right. Rates are set by trade classification and state, and roofing and similar high-risk work can pay well over 10 percent of wages, while office work pays a fraction of that. Your insurer or your policy's declarations page has your real rate.
Labor cost questions
What is labor burden?+
Labor burden is everything an employee costs on top of their wage: employer payroll taxes, workers' compensation, benefits and paid time off. It is usually shown as a percentage of the wage. Many trade businesses land somewhere between 20 and 40 percent.
How do you calculate labor cost per hour?+
Add up a year of wages, employer payroll taxes, workers' comp and benefits, then divide by the hours you pay for. Divide by billable hours instead to see what each hour you can actually charge for has to cover.
How much should I charge per hour for labor?+
Start from the labor cost per billable hour, add your overhead per billable hour, then divide by one minus the profit margin you want. At a 20 percent margin that means dividing by 0.8.
Does this work if I'm self-employed with no employees?+
Yes. Enter the salary you want to pay yourself as the wage. For payroll taxes, self-employed people pay self-employment tax of 15.3 percent on most of their net earnings, covering both halves of Social Security and Medicare. Add your own health insurance under benefits.