Why the rate is double the wage
A tradie who wants to earn what a good employed tradesperson earns, about $110,000 a year, works out that this is $53 an hour over a 46-week, 45-hour year and wonders why anyone charges $120. The answer is that only some of those hours can be billed, the wage is not the whole cost of the wage, and the business has costs that no job pays for directly. The calculator walks through the four steps.
rate = (wage × (1 + on-costs) + overheads) ÷ billable hours ÷ (1 − margin)
Step 1: billable hours
Of a 45-hour week, a self-employed tradie spends maybe 31 on tools that can be charged to a job. The rest is quoting, driving between jobs, the trip to the supplier, invoicing, chasing money, the safety paperwork, and the morning it rained. At 70 percent billable over 46 weeks that is about 1,450 hours a year to carry everything, not 2,070.
Step 2: on-costs
Superannuation is 12 percent of the wage. Workers compensation, or income protection for a sole trader, is typically 3 to 5 percent depending on the trade. Paid leave is handled here by working 46 weeks and being paid for 46, but if you want four weeks of paid holidays and two of sick leave, the wage has to be earned in 46 weeks and spread over 52, which is the same thing. Together the on-costs add about 16 percent, so a $110,000 wage costs about $127,600.
Step 3: overheads
The ute and its fuel, registration and insurance. Tools and their replacement. Public liability and, for some trades, professional indemnity. Licence and registration fees. Phone, software, the accountant, the website, the odd bit of advertising, and the trailer. A one-person trade business rarely gets away with less than $25,000 a year and $35,000 to $45,000 is common. Every billable hour has to carry a share: $35,000 over 1,450 hours is $24 an hour before a single tool is lifted.
Step 4: margin
Break-even is not a rate, it is a warning. A business that charges exactly its costs has nothing for the quiet month, the client who never pays, the tool that walks off site, or growth. Add a margin of the charge-out price, 15 percent or more, and the rate for the example comes out at around $132 an hour ex GST, $145 inc, which is why established trades charge what they charge.
| Step | Figure | Per billable hour |
|---|---|---|
| Wage wanted | $110,000 | $76 |
| Plus super and insurance, 16% | $127,600 | $88 |
| Plus overheads | $162,600 | $112 |
| Plus 15% margin | $132 ex GST |
At 1,449 billable hours. Figures rounded.
Worked example
A carpenter wants $110,000 a year, works 46 weeks of 45 hours, bills 70 percent, pays 12 percent super and 4 percent income protection, carries $35,000 of overheads and wants a 15 percent margin. Billable hours 1,449. Labour cost $127,600. Break-even $112 an hour. Charge-out $132 ex GST, $145 inc, or about $1,055 a day. If she charges $100 an hour instead, the year ends about $46,000 short of the plan, and the shortfall comes out of her wage.
Common questions
How do I work out my charge-out rate?
Wage plus on-costs plus overheads, divided by billable hours, divided by one minus the margin.
What share of hours is billable?
Usually 60 to 75 percent. The rest is quoting, travel, pick-ups and paperwork.
What are the on-costs?
Super at 12 percent, workers comp or income protection at 3 to 5, plus leave. About 20 to 25 percent all up.
Do sole traders have overheads?
Yes, typically $25,000 to $45,000 a year. They just do not show on a payslip.
General arithmetic, not financial advice. Award rates, superannuation obligations and insurance requirements for your trade are matters for Fair Work, the ATO and your accountant.