Charge-out rate
A charge-out rate is the hourly amount a business bills a customer for an employee's time. It is not what the employee is paid. It is their true cost, plus a share of business overhead, plus the profit margin the business needs to make.
In practice for trades
Three numbers build a charge-out rate, and skipping any of them is how a firm ends up busy and broke.
The first is what the hour actually costs. Gross wage is only part of it. Employer's National Insurance, pension contributions, holiday pay, sick pay, training, PPE and tools all sit on top, so an employee on £18 an hour rarely costs less than £26 to £30.
The second is overhead recovery. Every billable hour has to carry a slice of the rent, the vans, the insurance and the office time, because those costs do not stop when nobody is on site.
The third is margin, and it is the one most often confused. A 30% margin is not the same as adding 30%. Margin is taken from the sell price, so you divide by 0.70 rather than multiplying by 1.30.
The rate also has to be recovered across billable hours only. An engineer paid for 40 hours who is on site for 30 carries the full cost in those 30.
Worked example
An employee's true cost is £28 an hour. Overhead recovery adds £12, so an hour costs you £40. For a 30% margin you divide by 0.70: £40 ÷ 0.70 = £57.14 an hour, rounded to £57. Add 30% instead and you would bill £52 and quietly earn a 23% margin.
Related terms
- Day rate: the same idea priced by the day rather than the hour
- Job costing: checking after the job whether the rate held up
Work it out in FieldHive
Build a defensible rate from wage, on-costs, overhead and target margin with the Employee Charge-Out Rate Calculator.
Employee Charge-Out Rate Calculator→
