What your carpenter really costs you per hour

Most trade businesses price labour off the wage. It’s the number you know, it’s on every payslip, and it’s wrong by about half. The wage is what the carpenter is paid before tax. What the business pays for every hour they’re actually on the tools is a lot more, and if your rates don’t cover it, you’re working for nothing on the jobs you thought were fine.

Here’s the maths on a $45-an-hour carpenter, one step at a time. Swap in your own numbers as you go.

Step 1: start with what you pay

A full-time carpenter on 38 hours a week, paid every week of the year, is paid for 1,976 hours. At $45 an hour that’s $88,920. Paid leave and public holidays are in that number, because you pay for those hours whether they’re on site or not.

Step 2: add the on-costs

On top of the wage come the costs of employing someone. In this example they add up to about 20% of the yearly pay, which takes the year to $106,704.

Your WorkCover rate depends on your industry and your claims history, and the allowances (tools, travel, fares) come from your award or EBA. Look them up once a year and update the number.

Step 3: count the hours they’re actually on the tools

You don’t get 1,976 hours of work out of 1,976 paid hours. Take out the time that’s paid but not billable:

Then divide: $106,704 for the year over 1,596 hours on the tools is $66.86 an hour. That’s already $21.86 more than the wage, before you’ve paid for a single ute.

Step 4: add your overheads

The business has costs that don’t belong to any one job: utes and fuel, insurance, phones, software, the accountant, the yard. Add them up for the year from your profit and loss, and share them across the people who earn the money.

In the example, $150,000 a year of overheads across five carpenters is $30,000 each. Over 1,596 hours, that’s another $18.80 an hour.

The number to price from

Put the two together, ($106,704 + $30,000) ÷ 1,596 hours, and it’s $85.65 an hour. That’s what an hour on the tools costs the business before it makes a cent. Charge $70 an hour for that carpenter and every hour loses you money, even though $70 looks like a healthy markup on $45.

Work out your own number

You need five things, and most of them are already in your books:

• Last year's wages for each person, from your payroll.
• Your on-costs: super, your WorkCover premium notice, portable long service leave if your state has it, allowances, and payroll tax if it applies.
• The leave and public holidays your crew actually took.
• Lost days: rain, travel, waiting on other trades. Your timesheets show them.
• A year of overheads from your profit and loss.

Do it once a year, or whenever wages change, and use the result everywhere you price labour: your hourly rate, your day rate, and the labour in every unit rate you quote. The prebuild guide shows how that flows into a square-metre price.