Hourly Rate Calculator

Billable hours are the hours a contractor can charge a client for; working hours include everything else — driving between jobs, writing estimates, managing crews, ordering materials, and admin. Most independent contractors are only billable for 60–70% of their working hours, which means a 40-hour week typically yields 24–28 billable hours. Underestimating the gap between working and billable hours is the single most common reason contractors set hourly rates too low and end up undercharging.

Flat rates work better for predictable, repeatable jobs (installations, standard remodels, defined-scope projects), while hourly rates work better for variable work (diagnostics, repairs, time-and-materials jobs, and complex remodels with uncertain scope). Most experienced contractors use both: flat rates for completed scopes of work, hourly for change orders or work outside the original contract. Flat rates protect clients from cost surprises; hourly rates protect contractors from scope creep.

To raise your hourly rate without losing clients, announce the increase 30–60 days in advance, apply it to new clients first, and grandfather existing clients for a defined period. Most contractors lose far fewer clients than they expect from a price increase — the typical attrition rate after a 10–15% increase is 5–10%, and the contractors who leave are usually the most price-sensitive (and least profitable). Pair the increase with a clear improvement: faster response time, better communication, or upgraded tooling/uniforms.

New contractors should charge at least 70–80% of the local market rate, not 50% or lower. Pricing too low signals inexperience and attracts difficult, low-budget clients. Look up the average GC rate for your metro on industry surveys or supplier networks, then position yourself slightly below market while you build a portfolio. Avoid the common mistake of pricing based only on hourly take-home — even brand-new contractors need to cover overhead, taxes, insurance, and tools, which roughly doubles the rate compared to W-2 wages.

To calculate target income, start with your desired take-home pay, then add taxes (typically 25–30% for self-employed contractors), then add personal expenses you want the business to cover (health insurance, retirement contributions, vehicle). For example, a $75,000 take-home goal with 25% taxes and $15,000 in business-paid personal expenses works out to a target income of about $115,000. This is your annual target income before business overhead, which gets factored in separately when calculating hourly rate.

The overhead costs contractors miss most often are self-employment tax (15.3% on top of income tax), workers’ comp, general liability insurance renewals, software subscriptions, vehicle depreciation, and time spent on unpaid bidding. Smaller items like phone/internet, accounting fees, continuing education, and license renewals add up to thousands per year. Underestimated overhead is why many contractors feel busy but unprofitable — the rate they charge covers labor and materials but quietly fails to cover the cost of running the business.

Sales tax on contractor labor varies by state and project type — some states tax all contractor services, some tax only specific trades (like repair vs. new construction), and some don’t tax labor at all. Materials are almost always taxable, but who pays the tax (contractor or client) depends on whether you’re operating as a “retailer” or “consumer” of those materials in your state’s tax code. Check with your state’s department of revenue or your accountant before pricing — getting this wrong can mean owing back taxes years later.