Construction Hourly Rate: Calculation and Checks

The selling hourly rate in construction is calculated from an employee's hourly cost price, meaning their total annual cost divided by their productive hours. Hourly overheads are added, then a contingency and a margin. The result is the price at which the company must bill an hour to cover its costs and generate a profit.

Three notions are often confused and distort quotes. The hourly cost is what a paid hour costs the company, including payroll charges. The hourly cost-price rate is the full cost of a genuinely productive hour, after accounting for non-billable hours and overhead. The selling hourly rate is the price billed to the client, once contingency and margin are added.

The three notions not to confuse Notion | What it measures | Basis of calculation Hourly cost | The cost of an hour paid to the employee | The person's annual cost divided by paid hours Hourly cost-price rate | The cost of a productive hour, overheads included | The person's annual cost plus overhead divided by productive hours Selling hourly rate | The price billed to the client | Cost-price rate increased by contingency and margin No amounts are given here: each company must start from its own accounting data.

The overall formula

The logic boils down to this: selling rate = (employee's annual direct cost ÷ annual productive hours + annual overheads ÷ the company's total productive hours) increased by contingency and margin. The following sections detail each term. No regulatory figure enters this formula: everything comes from your payslips, your accounts and your schedules. More calculation tools are collected on the page calculators for construction companies.

Key takeaways The selling rate starts from the hourly cost price, not from competitors' prices. Hourly cost, cost-price rate and selling rate are three distinct notions. The divisor is the billable productive hour, not the paid hour. Overheads, contingency and margin are added to the cost price. All the data comes from your accounts, your payslips and your schedules.

The cost price of a construction employee goes well beyond their gross salary. It adds up everything the company spends so that this person can work on site. Forgetting one item means selling the hour below its real cost.

• Gross salary, including any overtime. • Employer contributions, to be taken from the payslips. • Paid leave, whose cost weighs on the hours actually worked. • Bonuses and allowances tied to the position, for example those provided for by your collective agreement. • Training, including safety and certification training. • Personal protective equipment (helmet, boots, harness, work clothing). • The assigned vehicle (depreciation or rental, fuel, maintenance, insurance). • Individual tools and their replacement. • Insurance directly linked to the position.

Direct costs and overhead

Direct costs are attached to a specific person: their salary, their charges, their vehicle, their tools. Overhead, or general expenses, benefits the whole company (premises, accountant, software) and is then spread across all productive hours. Mixing the two leads either to counting expenses twice or to forgetting them.

To put a figure on each item, use your payslips for the last twelve months, your vehicle and insurance invoices, and the statements from your chartered accountant. The prevention measures adopted in your DUERP, the French single document for assessing occupational risks, also generate costs to include (equipment, training): the DUERP guide for construction details this obligation. This guide deliberately gives no contribution rate: it varies with salary, status and the schemes that apply. For the official rules on contributions, see service-public.fr.

A construction employee bills fewer hours than they are paid for, and the gap is specific to each company. Productive hours are the hours that can actually be sold to the client, as opposed to paid hours. The gap comes from leave, public holidays, training, absences and all the time spent around the site without being billed.

• Paid leave and public holidays. • Training and certifications. • Absences (illness, family events). • Travel between depot and site, when not billed. • Preparation, loading and unloading of the vehicle. • After-sales service and rectification of defects. • Administrative work, meetings, quantity takeoffs.

Determining your own productive hours

Start from the hours paid over the year, then deduct non-billable hours item by item, relying on your schedules, time records and site sheets. If you do not yet track time spent per site, record it over a few representative weeks, then extrapolate with caution. Avoid borrowing an average percentage from another sector or another type of company: your own organization is the only valid reference.

The step that weighs the most The number of productive hours is the divisor in the hourly rate calculation. An overestimate lowers the apparent cost-price rate and leads you to sell below your real cost, without your cash position showing it right away.

Overheads are spread by dividing total annual overhead by the company's total productive hours. The result is an overhead cost per productive hour, which is added to each employee's hourly cost price. This method ensures that every hour sold contributes to paying for the structure.

• Premises, depot, rent and associated charges. • Administrative costs and secretarial work. • Company insurance (including that linked to the activity). • Chartered accountant and bank fees. • Management vehicles and travel not assigned to a site. • Software, telephony, subscriptions. • Professional dues and communication costs.

The manager's role

A manager who works on site counts their site hours as productive hours, with a cost price calculated from their pay. The time they devote to quotes, management, purchasing and team supervision counts as overhead. So split their time into two parts, based on their real calendar and not on an optimistic estimate.

Redo this calculation every year from the last financial year, taking into account new expected costs (new premises, new software, recruitment). An overhead cost calculated on past expenses often underestimates the burden of the coming year.

Once the hourly cost-price rate is calculated, two elements remain to be added: the contingency, which covers the unexpected (rework, weather, discovery of a damaged substrate), and the margin, which rewards the profit the company is aiming for. Both are set according to your objectives: no rate is imposed by regulation.

Margin coefficient and margin rate

The margin coefficient is the ratio between the selling price and the cost price: a coefficient above 1 means the price exceeds the cost. The margin rate is the margin expressed as a percentage of the cost price, whereas the margin rate on selling price relates it to the billed price. These two percentages are not identical for the same transaction: always specify the basis used.

Two ways of expressing margin Notion | Basis of calculation | Formula Margin coefficient | Cost price | Selling price ÷ cost price Margin rate (on cost) | Cost price | (Selling price − cost price) ÷ cost price Margin rate (on selling price) | Selling price | (Selling price − cost price) ÷ selling price These formulas are general and contain no reference figures.

Illustrative calculation example

Example without figures, to be completed with your data An employee's annual direct cost, divided by their productive hours, gives their hourly cost. The company's annual overheads, divided by productive hours, give their cost per hour. The sum of these two amounts forms the hourly cost-price rate. A contingency is added to the cost-price rate, then a margin is applied to that total, which gives an illustrative selling rate per hour excluding tax.

Apply this sequence with your own values. The margin rate must meet your needs for investment, cash flow and manager's pay, not an industry standard.

A single rate works when employee costs and site conditions are similar. As soon as the differences become real, a single rate makes some people pay for the costs of others and distorts the profitability of certain quotes. The decision rests on measurable criteria, not on a general rule.

Single rate or differentiated rates Criterion | Rather a single rate | Rather differentiated rates Cost gaps between employees | Small | Significant (qualification, seniority, bonuses) Equipment used | Standard tools | Specific machine or equipment to depreciate Nature of the sites | Uniform | Highly variable complexity, access or constraints Number of trades | A single trade | Several trades in the company A differentiated rate requires tracking hours by trade and by site.

In practice, a small construction business, a very small single-trade company, can often make do with a single rate. A mid-sized construction company, a small or medium-sized business combining several trades and varied qualifications, generally has an interest in differentiating its rates.

Including the rate in the quote

In the quote, distinguish labor (productive hours at the selling rate), supplies, the non-productive time attributable to the site (preparation, loading) and travel. If you include non-productive time in the rate, do not bill it a second time. Each choice must remain consistent from one quote to the next so that the profitability analysis stays readable.

The calculation sets your floor: below it, you work at a loss or without enough margin. The market shows what the client actually accepts above that floor. If you match an average price without knowing your costs, you risk selling below your break-even point.

• Competitors' quotes that your clients show you. • Your conversion rate, meaning the share of quotes sent that become jobs. • Client feedback on your prices, notably reasoned refusals. • Your margins recorded at the end of a job, compared with those planned in the quote.

The signals that call for a revision

• Rising cost of wages, materials, fuel or insurance. • Change in headcount (hiring, departure, apprentices). • Change in productive hours, for example more travel or absences. • Recurring gap between planned margin and recorded margin.

Schedule at least one annual review at the time of the accounts closing, and trigger a revision as soon as one of these signals appears. A well-calculated rate does not protect against a client who pays badly: the guide to anticipating unpaid invoices in construction completes the approach on the collection side. If you respond to tenders, the guide to public procurement for construction presents the documents to provide (DC1 to DC4, French public procurement forms).