Overhead rate calculator

Find how much overhead each labor hour or each dollar of direct labor must carry.

In shortOverhead rate per hour = total overhead ÷ direct labor hours. Overhead as a percent of labor = total overhead ÷ direct labor cost × 100.

Who uses itService business owners and estimators
WhenQuarterly, or when rent, vehicles or staff change
You needMonthly overhead, billable hours and their wage cost
ResultOverhead per billable hour and as a share of labor

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The math behind the overhead rate

Overhead per hour = overhead ÷ direct labor hours.

Overhead % = overhead ÷ direct labor cost × 100.

Cost per hour before profit = (overhead + direct labor cost) ÷ direct labor hours.

Walking through an overhead rate example

A cleaning company has $14,000 monthly overhead and 1,200 billable hours costing $27,600 in wages. Overhead is $11.67 per hour, or 50.7% of labor. Each billable hour costs $34.67 before profit, so a rate of $30 an hour would lose money.

Who uses this calculator

Use it when you price jobs in service businesses such as cleaning, landscaping, HVAC or construction. Each billable hour must cover wages and a share of rent, vehicles, insurance, software and office staff.

Overhead means costs not tied to a single job. Direct labor means wages for hours worked on jobs.

A second example

An HVAC company carries $32,500 a month in overhead, including dispatch staff, shop rent, vehicles and insurance. Its technicians log 2,600 billable hours costing $75,400 in wages. Overhead is $12.50 per billable hour, or 43.1% of direct labor, and the average tech costs $29.00 an hour. Each billable hour therefore costs $41.50 before profit.

What your overhead rate result means

Overhead per hour is what every billable hour has to carry, so it is the number to add to wage cost when you set rates. The percentage of labor is handy for labor markups but changes whenever wages change, even if overhead does not. The result is wrong if overhead includes costs already charged to jobs, such as materials or subcontractors, because they would be recovered twice.

What we see go wrong with an overhead rate

Dividing overhead by paid hours instead of billable hours. Drive time and shop time do not earn money, so they cannot carry overhead.
Using a busy month’s billable hours. Base the rate on an average month, or slow months will lose money.
Leaving out annual bills such as insurance and licenses. Divide them by 12 and add them to the monthly overhead.

The overhead rate by team type

HVAC and electricalCalculate a separate rate for service calls and for installation work if they use different trucks and staff.

Home cleaning companiesInclude the scheduler’s or office manager’s wages in overhead, since that work supports every visit.

Worth knowingRecalculate overhead the month you add a truck or a new office hire. Those single decisions can change the rate more than a year of small price rises.

Overhead rate questions, answered

Which hours should I use?

Only hours worked on billable work. Travel and admin time belong in overhead or in your pricing assumptions.

How often should I recalculate?

Quarterly, and when costs change.

Should the owner’s pay be included?

If the owner is paid a salary for management, include it in overhead.

Is this the same as labor burden?

No. Burden is taxes and benefits on wages. Overhead is everything else.

Should each service line get its own overhead rate?

If one service uses expensive equipment or a lot of office time, a single rate makes it look cheaper than it is and the others look more expensive. Split out overhead that clearly belongs to one line, such as a lift truck used only on commercial jobs, and run that line on its own hours.

How do I use the overhead rate when quoting a job?

Multiply estimated labor hours by the labor plus overhead per hour figure, then add materials and profit. A 6-hour job at $41.50 an hour costs $249 in labor and overhead before parts or markup.

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General information and an estimate only. It is not legal, payroll, tax or financial advice. Rules vary by state and city. Check important results with a qualified professional.