Featured guide · Estimating
How to calculate your true hourly labour cost
Your charge-out rate needs to cover far more than wages. Work through productive hours, overheads and profit so every hour sold contributes to the business.
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Better building estimates start before the numbers.
Straightforward guidance for builders who want to scope thoroughly, price with confidence and protect their margin.
Useful next reads
Build a stronger quoting habit
Each guide answers one question builders regularly face when scoping and pricing work.
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Sample article
How to calculate your true hourly labour cost
Your hourly labour cost is not the wage you pay. It is the cost of employing someone, sharing business overheads across their productive hours and allowing enough profit to keep the business healthy.
1. Start with the annual employment cost
Include wages or salary, employer contributions, leave, insurance, training, tools or allowances and any other cost directly tied to employing that person.
2. Use productive hours—not paid hours
A full-time employee may be paid for roughly 2,080 hours a year, but leave, public holidays, training, travel, quoting, meetings and downtime all reduce the hours that can actually be charged to jobs.
A common estimating mistake: dividing annual employment cost by every paid hour. That makes the hourly cost look lower than it really is.
3. Add a fair share of overheads
Vehicles, administration, software, accounting, rent, phones and other business costs still need to be recovered. Allocate an appropriate share to each productive worker.
(Employment cost + overhead share) ÷ productive hours = break-even hourly cost
4. Add profit separately
Break-even is not a selling rate. Apply your target margin after calculating the genuine hourly cost. This leaves a clear distinction between recovering costs and earning profit.
A quick check before using the rate
- Have annual leave, public holidays and sick leave been allowed for?
- Have non-chargeable travel, meetings and admin time been removed?
- Does the overhead allocation reflect the real cost of running the business?
- Is profit being calculated as margin—or accidentally as markup?
The number will differ between businesses. What matters is that it is based on your costs and realistic productive hours, not an industry guess.
Put the guide into practice
Let SAM do the repeatable work.
Keep labour rates, cost libraries and templates together—then Ask SAM to check the scope before you quote.