DIPAZE
Free tool

Contractor Hourly Rate Calculator

Turn the income you want into the hourly rate you need to charge. Add your taxes, overhead and profit margin, and see what happens to the rate if you bill fewer hours than planned.

Your goal

$
Example value. What you want to keep after taxes.
%
Optional. Example only, ask your accountant. Use 0 to skip.

Your time

Hours you charge customers for. Example: 45 hours worked but 25 billable.
52 minus vacation, holidays and sick time.

Yearly overhead (editable examples)

$
$
$
$
$
Total overhead per year$21,000
%
Extra the business keeps beyond your pay, for slow months and growth.

The values shown are examples, not benchmarks. Replace each one with your own.

Hourly rate to charge
$105.86/hour

Break-even rate (no profit margin)$95.28
Billable hours per year1,200
Gross pay needed before tax set-aside$93,333
Annual revenue needed$127,037
Profit kept by the business$12,704
($70,000 / (1 - 25%) + $21,000) / 1,200 hours / (1 - 10%) = $105.86 per hour

If you bill fewer hours

Same costs, fewer billable hours, so each hour has to earn more.

ScenarioBillable hours / yearRate needed
As planned1,200$105.86
10% fewer hours1,080$117.63
20% fewer hours960$132.33

How we calculate it

  1. Gross pay = take-home income ÷ (1 − tax set-aside)
  2. Costs to cover = gross pay + yearly overhead
  3. Billable hours = billable hours per week × weeks worked
  4. Break-even rate = costs to cover ÷ billable hours
  5. Hourly rate = break-even rate ÷ (1 − profit margin)

In one line: rate = (income ÷ (1 − tax set-aside) + overhead) ÷ billable hours ÷ (1 − profit margin).

Margin or markup: this tool applies the profit as a margin, a share of the rate you charge. The same rate as a markup on the break-even rate is margin ÷ (1 − margin), which is 11.1% for your margin. Multiplying the break-even rate by (1 + margin) instead would give a lower rate than you planned.

Billable is less than paid: in a 45-hour week with 25 billable hours, only 56% of your working time earns money directly. The rest is driving, quoting, parts runs and paperwork. This tool divides by billable hours so that time is paid for. These are examples; use your own time log.

The tax set-aside is a planning figure, not tax advice. Ask your accountant what to set aside.

Examples by trade

How to use this tool

  1. Set your income goalEnter the take-home income you want and, if you like, a tax set-aside.
  2. Be honest about hoursUse billable hours, not hours worked, and subtract vacation and holidays from the weeks.
  3. Add overhead and marginEdit the overhead lines, set a profit margin and read your hourly rate and the revenue it needs.

Frequently asked questions

How do I calculate my hourly rate as a contractor?
Start with the take-home income you want, add the tax set-aside to get gross pay, add your yearly overhead, and divide by the hours you can actually bill. Then divide by (1 minus your profit margin) so the business keeps a margin on top. The calculator above shows every step with your numbers.
Why use billable hours and not 40 hours a week?
You are paid for the hours you bill, not the hours you work. Driving, quoting, ordering parts, answering calls and doing paperwork take time that no customer pays for directly. If you work 45 hours and bill 25, dividing your costs by 45 would leave you short. The default of 25 billable hours is only an example; track a few weeks of your own time to find your real number.
What is the difference between profit margin and markup?
Margin is profit as a share of the rate you charge. Markup is profit as a share of your cost. A 10% margin means dividing your cost rate by 0.90, which equals an 11.1% markup. This tool uses margin. If you prefer markup, multiply the break-even rate by (1 + markup).
What should I include in overhead?
Costs you pay whether or not you have a job that week: insurance, vehicle and fuel, tools and equipment, software and phone, marketing, licenses, accounting. Edit the lines above and the total updates. Leave out materials you pass through to a customer, since those belong on the estimate.
What does the tax set-aside do?
Take-home income is what you keep after taxes. To get that, you have to earn more before taxes, so the calculator divides your take-home by (1 minus the set-aside). The 25% default is an example only; ask your accountant what applies to you.
What if I cannot bill as many hours as planned?
Then the same costs are spread over fewer hours and each hour has to bring in more. The sensitivity table shows the rate you would need if your billable hours drop by 10% or 20%, so you can see how much room you have.

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