Actual billable hours per employee (exclude breaks/admin).
Percentage added on top of costs for profit.
Please enter valid positive numbers for all fields.
True Labor Cost (per hour):
Overhead Allocation (per hour):
Break-Even Cost:
Profit Margin Amount:
Recommended Man Hour Rate:
How to Calculate Man Hour Rates Properly
Calculating an accurate man hour rate is fundamental for service-based businesses, contractors, and agencies. Setting your rate based solely on what competitors charge often leads to profitability leaks. This Man Hour Rate Calculator uses a "bottom-up" cost-plus approach to ensure every hour you bill covers your employee's wages, the company's overhead, and your required profit margin.
The Formula Components
To understand the output of this calculator, it is helpful to understand the four distinct layers that make up a profitable billing rate:
1. Base Wage: This is the hourly rate you pay the employee. If the employee is salaried, divide their annual salary by 2,080 (standard full-time hours).
2. Labor Burden: An employee costs more than just their salary. You must account for FICA taxes, unemployment insurance, workers' compensation, health benefits, and paid time off. A standard range for the US is 20% to 35% on top of the base wage.
3. Overhead Allocation: This is often the most overlooked cost. Overhead includes rent, utilities, software subscriptions, insurance, and the salaries of non-billable staff (like admin or HR). To find the hourly impact, divide your total monthly overhead by the total number of billable hours generated by your team.
4. Profit Markup: Once you determine the "Break-Even Cost" (Labor + Overhead), you apply a markup to generate net profit. This ensures business growth and cash reserves.
Billable vs. Actual Hours
A critical mistake in man hour rate calculation is assuming an employee is billable 40 hours a week. In reality, time is lost to meetings, emails, administrative tasks, and breaks.
For accurate calculations:
Standard Work Month: ~173 hours.
Realistic Billable Efficiency: 75% to 85%.
Recommended Billable Hours Input: ~130 to 150 hours per month per employee.
If you overestimate your billable hours, you will underestimate your overhead allocation per hour, leading to a rate that doesn't actually cover your costs.
Why Your Break-Even Point Matters
The "Break-Even Cost" displayed in the calculator represents the absolute minimum you can charge to keep the lights on and pay everyone, without the company making a cent of profit. If your current rates are below this number, your business is effectively subsidizing your clients. Knowing this floor is crucial for negotiation; you can lower your profit margin to win a deal, but you should rarely dip below your break-even cost.
function calculateManHourRate() {
// 1. Get Elements
var wageInput = document.getElementById("mhr_wage");
var burdenInput = document.getElementById("mhr_burden");
var overheadInput = document.getElementById("mhr_overhead");
var employeesInput = document.getElementById("mhr_employees");
var hoursInput = document.getElementById("mhr_hours");
var marginInput = document.getElementById("mhr_margin");
var resultBox = document.getElementById("mhr_results");
var errorBox = document.getElementById("mhr_error");
// 2. Parse Values
var wage = parseFloat(wageInput.value);
var burden = parseFloat(burdenInput.value);
var overhead = parseFloat(overheadInput.value);
var employees = parseFloat(employeesInput.value);
var hours = parseFloat(hoursInput.value);
var margin = parseFloat(marginInput.value);
// 3. Validation
if (isNaN(wage) || isNaN(burden) || isNaN(overhead) || isNaN(employees) || isNaN(hours) || isNaN(margin) ||
wage < 0 || burden < 0 || overhead < 0 || employees <= 0 || hours <= 0 || margin < 0) {
errorBox.style.display = "block";
resultBox.style.display = "none";
return;
}
errorBox.style.display = "none";
// 4. Logic
// Calculate True Hourly Labor Cost (Wage + Burden)
var laborCostPerHour = wage * (1 + (burden / 100));
// Calculate Overhead Per Man Hour
// Total monthly overhead / (Employees * Hours per Employee)
var totalBillableHours = employees * hours;
var overheadPerHour = overhead / totalBillableHours;
// Break Even Cost
var breakEvenCost = laborCostPerHour + overheadPerHour;
// Profit Amount
var profitAmount = breakEvenCost * (margin / 100);
// Final Rate
var finalRate = breakEvenCost + profitAmount;
// 5. Display Results
document.getElementById("res_labor").innerText = "$" + laborCostPerHour.toFixed(2);
document.getElementById("res_overhead").innerText = "$" + overheadPerHour.toFixed(2);
document.getElementById("res_breakeven").innerText = "$" + breakEvenCost.toFixed(2);
document.getElementById("res_profit").innerText = "$" + profitAmount.toFixed(2);
document.getElementById("res_final").innerText = "$" + finalRate.toFixed(2);
resultBox.style.display = "block";
}