Labor cost per hour calculator for contractors
The wage is not what an hour costs you. Add the payroll taxes, workers’ comp and the paid hours nobody is billed for, and see the real cost of one billable hour.
How the hourly cost is figured
A year of everything you pay for this worker, divided by the hours you can actually charge for.
Payroll taxes yearly pay × payroll tax %
Workers’ comp yearly pay ÷ 100 × rate per $100
Yearly cost pay + payroll taxes + workers’ comp + other
Cost per hour yearly cost ÷ billable hours
Billable hours, in plain words
You pay for every hour on the timesheet. You can only charge for the hours that end up on a customer’s job. The gap is real money: if 2,080 hours are paid and 1,664 are billed, each billed hour has to carry 1.25 hours of pay.
- Paid but not billed: holidays and vacation, rain days, shop and cleanup time, training, drive time you don’t charge for, callbacks you fix for free.
- Use your own records. Timesheets against invoiced hours for the last few months tell you more than any rule of thumb.
- Use the number in the quote. The cost per billable hour is the “cost per hour” for a crew line in the labor and job quote calculator. Overhead and markup are added there.
The guide to pricing labor walks through this same example and then turns it into a full job quote.
Where the numbers come from
- Social Security and Medicare: the employer pays 6.2% and 1.45% of wages, 7.65% in all (Social Security stops at the yearly wage base). IRS Topic 751.
- Federal unemployment (FUTA): 6.0% of the first $7,000 of each employee’s wages, usually 0.6% after the credit for state unemployment tax. IRS Topic 759. Your state sets its own unemployment rate.
- Workers’ comp: priced per $100 of payroll by class code. Rates are set by state; your policy shows yours. Example: the Idaho Industrial Commission’s 2026 rates, listed per $100 of payroll for each class code.
- For scale: in June 2026, wages were 70.0% of what private employers spent per hour worked on compensation; the rest was benefits and legally required costs. BLS, Employer Costs for Employee Compensation.
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Questions contractors ask
Is this what I should charge per hour?
No. It’s what an hour costs you. What you charge has to cover this, plus your overhead, plus profit. Put this number in a quote as the cost and add the rest on top; the markup and margin calculator shows what each percentage leaves you.
I work alone. Does this apply to me?
Yes. Use the hourly pay you want to take home as the wage and count your own billable hours. Self-employment tax is not an employer payroll tax: ask your tax preparer what to set aside, and leave the payroll tax field at what applies to you.
Where do I find my workers’ comp rate?
On your policy or your insurer’s quote: a dollar rate per $100 of payroll for each class code. Use the one for the work this person does.
Should overtime change the number?
Yes, if it’s regular. Count the overtime hours in paid and billable hours, and add the extra half-time pay, plus the payroll taxes and comp on it, to “Other yearly costs”. Those taxes are not added automatically to that field.
Where do the numbers go?
Nowhere. The math runs in your browser and nothing you type is sent to us. On talkestimate.com we count that the calculator was used, never what you typed.