How to Calculate Labor Cost for a Contractor Bid
Multiplying hours by the wage is the most common way to underprice labor. An hour of labor costs more than the wage, and not every paid hour can be billed to a job.
Step 1: Start with the wage
Use the hourly wage you actually pay. Example: $25.00 per hour.
Step 2: Add labor burden
Burden is what you pay as an employer on top of the wage: the employer share of payroll taxes (Social Security and Medicare alone are 7.65% of wages), workers' compensation, unemployment insurance and any benefits. Add up last year's amounts and divide by total wages. In this example burden is 20%, so a paid hour costs $25.00 × 1.20 = $30.00.
Step 3: Divide by the billable share
Driving, loading, quoting, rain days and paid time off are paid but not billed. If 70% of paid hours end up on jobs, every billable hour has to carry the rest:
| Paid hours per year (40 × 52) | 2,080 |
| Billable hours at 70% | 1,456 |
| Yearly wage + burden: 2,080 × $30.00 | $62,400 |
| True cost per billable hour: $62,400 ÷ 1,456 | $42.86 |
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The short version: $25 × 1.20 ÷ 0.70 = $42.86.
Put it in the bid
| Estimated hours on the job | 16 |
| Labor cost at the bare wage: 16 × $25 | $400.00 |
| True labor cost: 16 × $42.86 | $685.71 |
Bidding from the wage would leave $285.71 of real cost out of this one job before any overhead or profit. Add materials and overhead to the true labor cost, then price from your target margin.
Run your own numbers with the labor burden calculator and the hourly rate calculator, then check the full price with the job price calculator. The whole method is in how to price a contractor job.
Want it built into your quotes?
The Contractor Quote & Margin Sheet takes hours, labor cost, materials and overhead and prices each job from your target margin in Google Sheets or Excel.
Figures are illustrative estimates for planning only. Burden rates vary by state, trade and insurer. This is not accounting, tax or legal advice.