The wage on a technician's paycheck is not what an hour of their time costs you. What a service hour really costs is the wage plus everything that rides on it: payroll taxes, insurance, the truck, the tools, the software, and the hours nobody pays you for. Price from the wage alone and you can be booked solid all week and still lose money. This guide, written for crews of 1 to 10 people, covers each cost, paid versus billable hours, overhead, and margin.
The cost lines that sit on top of a wage
Add these up per technician, per year, using your own bills where you have them.
Payroll taxes. The employer share of Social Security is 6.2% and the employer share of Medicare is 1.45% of wages (IRS Topic 751). Together that is 7.65% on top of the wage, before any unemployment tax.
Unemployment tax. The federal rate is 6.0% on the first $7,000 paid to each employee, and you may take a credit of up to 5.4% for state unemployment tax paid, which brings the effective rate to 0.6% if you qualify for the full credit (IRS Topic 759). Your state adds its own unemployment tax, with its own rate and wage base, so get those from your state agency.
Workers' compensation and liability insurance. Both are quoted by your insurance carrier, and the price depends on your trade, your state and your payroll. Use your actual quote, not a number from a blog. Divide each annual premium by the technicians it covers.
Vehicle and fuel. Count the payment or depreciation, vehicle insurance, fuel, repairs, tires and tolls. For a reference point, the IRS business standard mileage rate is 76 cents a mile for July 1 through December 31, 2026 (IRS standard mileage rates). That is a tax deduction rate, not your cost, but it is a useful number to compare your own per-mile figure against.
Tools and equipment. Divide the replacement cost of each tool by the years it lasts, then add consumables, safety gear and uniforms.
Software, phone and subscriptions. Every monthly bill that exists so work can happen. Watch tools that charge per person, because that line grows each time you hire.
Paid hours are not billable hours
This is where most hourly rates go wrong. A full-time technician is paid for about 2,080 hours a year if you count 40 hours a week for 52 weeks (that is arithmetic, and it includes any paid holidays and time off you give). You can only charge a customer for the hours spent doing the job.
The rest is real work you do not bill for: driving between jobs, loading the van, supply runs, writing quotes, callbacks, training, waiting on a customer, and paperwork. All of it is cost, and the hours you do bill have to pay for it.
So the number that matters is the share of paid hours that are billable. Do not guess it. Have each person log their day for two to four weeks and count what you could have charged for. Grouping jobs by area on one calendar helps, and Fasite's scheduling and dispatch board shows the day's jobs for each person and crew in one view, although it does not plan routes. Every extra billable hour you recover lowers the cost of every other one.
Spread your overhead over billable hours
Overhead is what you pay whether or not a truck rolls: the office or shop, accounting and bookkeeping, licenses, marketing, your phone line, and your own time when you are doing admin instead of billable work. If you work on the tools, treat that time like a technician's, with a wage and a share of the vehicle cost. If you run the office, your admin time is overhead.
To allocate it, add up a year of overhead and divide by the total billable hours of everyone on the crew. That gives an overhead cost per billable hour. Adding a technician spreads the same overhead over more billable hours, if the work is there to fill them.
Set the margin before you set the rate
Break-even is not a price. It pays everyone and leaves nothing for slow months, a van that dies, or you. Pick a target margin, then work backward:
Price per hour = cost per billable hour divided by (1 minus your target margin).
Margin and markup are different. Margin is profit as a share of the price you charge. Markup is profit as a share of your cost. A 20% margin needs a 25% markup, and a 20% markup gives you only a 16.7% margin. Mixing them up under-prices every job. The free markup calculator shows both from either number. The margin you target is your decision, based on what you need for owner pay, savings and growth. To run this with your own wage, overhead and margin, the free labor rate calculator for contractors adds current payroll taxes and does the math for you.
Example: one technician, made-up round numbers
This is an illustration with invented figures, not an average for any trade or city. Swap in your own.
| Cost line (one technician, one year) | Dollars |
|---|---|
| Wages: 30 dollars an hour for 2,000 paid hours | 60,000 |
| Payroll taxes and unemployment | 4,800 |
| Workers' compensation | 3,000 |
| Liability insurance share | 1,500 |
| Van, fuel, repairs and van insurance | 9,000 |
| Tools and equipment | 1,500 |
| Software and phone | 1,200 |
| Direct cost of this technician | 81,000 |
| Share of overhead (office, accounting, marketing, owner admin time) | 15,000 |
| Total to cover | 96,000 |
Now suppose 1,200 of those 2,000 paid hours are billable, which is 60%. The rest is driving, loading, quotes and callbacks.
- Break-even: 96,000 divided by 1,200 billable hours is 80 dollars an hour.
- At a 20% margin: 80 divided by 0.8 is 100 dollars an hour.
- If this technician had been priced at double the wage, 60 dollars an hour, a year of 1,200 billable hours brings in 72,000 against 96,000 of cost. That is a 24,000 loss while the schedule looks full.
Billable hours are the biggest lever. If the same technician bills 1,400 hours, about four more a week over a 50-week year, the break-even falls to roughly 69 dollars an hour and the 20% margin rate to roughly 86 dollars, with no change in what the technician is paid.
Turn the rate into a quote
An hourly rate is the building block of a price, not the price itself. A job quote is the estimated hours times your rate, plus materials, plus any fee you charge for the trip. Compare estimated hours with actual hours after a few jobs, because a rate cannot fix estimates that are an hour off every time. The same cost-plus-margin method, worked through one trade at a time, is in how much to charge for house cleaning, pressure washing, gutter cleaning and handyman rates.
Once you have the number, the practical step is building estimates from your real labor cost: put the rate into your price list, add hours and materials, and send the customer a link they can approve online. For the materials half of a bid, there are free construction and home calculators on Efficienco for takeoffs such as concrete, drywall and lumber.
Fasite is not a payroll or accounting tool. It has no QuickBooks or Xero sync, and invoices, payments and reports download as spreadsheets, so your cost-per-hour math will most likely live in your own spreadsheet. Fasite does not charge per person, which keeps the software line flat as you add crew. See current pricing.
Frequently asked questions
How do I find the true hourly cost of an employee?
Add the wage, employer payroll taxes, unemployment tax, workers' compensation, your share of liability insurance, vehicle, tools and software for a year, then divide by the hours that employee is paid. For pricing, divide by billable hours instead, because only those hours earn money.
What is the difference between paid hours and billable hours?
Paid hours are every hour you pay someone for, including driving, loading and paperwork. Billable hours are the hours you can charge a customer for. Your price has to cover the cost of all paid hours using only the billable ones.
How do I allocate overhead to each job?
Add up a year of overhead and divide by the total billable hours of everyone on the crew. Add that amount to each billable hour's cost. Jobs that take more hours carry more of the overhead.
What profit margin should a small service business target?
There is no single right number, and a figure copied from another business may not fit yours. Decide what you need for owner pay, savings and growth, then use the formula above to turn that margin into a rate.
Is margin the same as markup?
No. Margin is profit divided by the price. Markup is profit divided by your cost. A 20% margin on an 80-dollar cost gives a 100-dollar price, which is a 25% markup.
Should I charge by the hour or by the job?
Either works if both start from the same cost per billable hour. Many owners quote a flat price per job, built from estimated hours times their rate plus materials, and track actual hours to check the estimate.
How do I price my plumbing jobs?
Start with your cost per billable hour, add your target margin to get an hourly rate, then quote each job as estimated hours times that rate, plus parts and any trip fee. Supply-house runs, callbacks and driving between jobs are unbillable hours, so they belong in the cost, not in a surprise on the invoice. After a few jobs, compare estimated hours with actual hours, because a rate cannot fix estimates that are an hour off every time.