Contractor Hourly Rate Calculator
Setting the right hourly rate is one of the most critical business decisions for independent contractors and small contracting firms. Charge too little and you cannot cover overhead or earn a livable income. Charge too much and you lose bids. This calculator works backward from your income goals and true business costs to determine the hourly rate you need to charge.
Calculate Your Required Hourly Rate
This calculation covers direct costs and desired take-home pay. It does not include self-employment tax (15.3%), income tax, or retirement savings. Many contractors add 25–35% on top of this rate to cover taxes and benefits. Non-billable time (estimates, travel, admin, callbacks) is accounted for by the billable-hours figure — the fewer billable hours per week, the higher the required rate.
Understanding Contractor Rate Components
| Cost Category | Typical Annual Range | Notes |
|---|---|---|
| General Liability Insurance | $2,000–$8,000 | Required by most states and clients; higher for roofers, electricians |
| Workers’ Comp Insurance | $3,000–$15,000 | Per-employee; rate varies by trade and claims history |
| Vehicle & Fuel | $8,000–$18,000 | Truck payment, insurance, gas, maintenance |
| Tools & Equipment | $2,000–$15,000 | Replacement, repair, specialized tools; higher first few years |
| Marketing | $1,000–$10,000 | Website, ads, lead services, signage, business cards |
| Licenses & Continuing Ed | $500–$3,000 | State/local contractor licenses, certifications, bond premiums |
| Office / Admin | $1,200–$6,000 | Phone, software, accounting, estimating tools |
| Self-Employment Tax | 15.3% of net | Social Security + Medicare (employer + employee portions) |
Why Billable Hours Matter More Than Total Hours
Most independent contractors work 45–55 hours per week but only 25–35 of those hours are billable. The rest is consumed by:
- Estimating and bidding — preparing quotes for jobs you may not win. A 25–30% close rate means 3–4 estimates for every job won.
- Travel time — driving between jobs, supply runs, inspections.
- Administrative work — invoicing, scheduling, permit applications, client communications, bookkeeping.
- Callbacks and warranty work — returning to fix or adjust previous work at no charge to the client.
- Marketing and networking — maintaining online presence, meeting with potential referral sources, attending trade events.
This non-billable time is real work that must be funded by your billable rate. Underestimating non-billable hours is the number-one reason contractors underprice their services.
Markup vs. Margin
Contractors often confuse markup and margin. Markup is the percentage added on top of costs. Margin is profit as a percentage of the selling price.
- A 50% markup on $100 in costs = $150 price (33% margin)
- A 100% markup on $100 in costs = $200 price (50% margin)
- Industry standard contractor markup ranges from 30–50% for overhead and profit combined, depending on trade, region, and project complexity.
Frequently Asked Questions
What is a typical contractor hourly rate?
Rates vary widely by trade, experience, and region. General contractors typically charge $50–$150/hour. Specialized trades (electricians, plumbers) range from $65–$200/hour. Handymen charge $40–$80/hour. These rates include overhead and profit — the contractor’s actual take-home pay is typically 35–50% of the billed rate.
Should I charge hourly or by the project?
Most experienced contractors prefer project-based (fixed) pricing because it rewards efficiency and provides cost certainty for clients. However, you still need to know your hourly rate to build accurate project bids. Time-and-materials billing is appropriate for projects with uncertain scope, like discovery work, repairs with unknown extent of damage, or ongoing maintenance contracts.
How do I account for taxes in my rate?
As a self-employed contractor, you owe self-employment tax of 15.3% on net earnings (Social Security 12.4% + Medicare 2.9%), plus federal and state income tax. A common approach is to multiply your required rate by 1.25–1.35 to cover the tax burden, then set aside 25–30% of every payment in a separate tax account.