What an hour actually costs your trades business to sell

Your shop rate is the cost of an hour of labour, plus the share of overhead that hour has to carry, divided by one minus the profit you intend to make. Every part of that sentence has to be measured from your own records. The number that comes out is almost always higher than the number the shop down the road is charging, and a trades business that is booked eight weeks out and still short of cash is usually a business that set its rate by looking sideways instead of downward.

There is no tax rule in this post. This is the arithmetic underneath every quote you write, and it is the piece we rebuild most often when a busy contracting business cannot explain where the year went.

Paid hours and billable hours are different numbers

Start with 2,080, a 40-hour week for 52 weeks, and then take out everything you cannot put on an invoice. For a working owner-operator a realistic year looks like this.

Most owner-operators land somewhere between 1,000 and 1,400. Field employees do better, commonly 65% to 75% of paid hours, because their loading, cleanup, shop time and travel still are not billable unless you bill for them.

This is the gap that ends businesses. Set a rate assuming 2,000 billable hours when you actually invoice 1,100, and every fixed cost in the company is under-recovered by roughly 45% for the whole year. Volume makes that worse rather than better, because each additional job carries the same shortfall.

Measure it rather than estimating it. Take last year's invoiced labour hours from your job records and divide by the hours you and the crew were actually paid for. That ratio is your utilization, and it beats any industry benchmark because it is yours. A first-year apprentice will drag it down for obvious reasons, which is part of the calculation before you take one on and is covered in hiring your first apprentice.

What an employee hour costs before overhead

The wage is the start of the number. Take a service technician at $34.00 an hour, 2,000 paid working hours, in a business rated in WSIB class G4, building equipment construction, at $1.54 per $100 of insurable earnings for 2026.

Those are the 2026 figures: CPP at 5.95% to a $74,600 ceiling, EI at an employee rate of 1.63% on insurable earnings to $68,900 with the employer paying 1.4 times that, and WSIB rates where construction classes run from $1.54 to $3.55 per $100 against a $121,700 earnings ceiling. The public holiday figure is the ESA formula: four weeks of regular wages, $5,440, plus the vacation pay payable on it, divided by 20. Vacation pay is 4% for employees with less than five years of service and 6% once they pass five years, which quietly moves this table for anyone long-serving. Check whichever of these apply to you on our 2026 rates page before you rebuild it, because all of them move in January.

$80,117.59 over 2,000 paid hours is $40.06, about 18% above the wage. Add the costs that genuinely attach to employing that person rather than to running the shop, say $2,900 a year for safety gear, a tool allowance, a phone and certification renewals, and you are at $41.51 per paid hour.

Now divide by utilization, which is the step nearly everyone skips. At 70%, that technician gives you 1,400 billable hours, and $83,018 spread across 1,400 hours is $59.30 per billable hour.

A caution on double counting. Trucks, fuel, shop rent and general insurance are overhead, not labour burden. Adding them here and again in the next section inflates the rate twice and produces a number you will not be able to defend to a customer. Where each cost belongs is a chart of accounts question, which we set out in job costing and WIP for contractors.

Overhead has to be recovered per billable hour

List the annual fixed costs that exist whether or not a job is running. For a two-truck shop:

The denominator is billable hours, not paid hours. The owner's 1,060 plus the technician's 1,400 is 2,460 hours, so overhead recovery is $39.02 per billable hour.

Run the same $96,000 across the 4,160 paid hours two people represent and it looks like $23.08. Same business, same costs. The difference is $15.94 an hour across 2,460 real hours, which is $39,212 of overhead that never gets billed to anyone. That figure is roughly what an owner-operated shop earns in a year, and it disappears inside a single wrong denominator.

From a target profit to a shop rate

Decide what the business is supposed to make, in dollars, before you divide anything. Say the owner is drawing a fully loaded $110,000 and the corporation should clear $45,000 of pre-tax profit on top of that.

That $45,000 is 13.5% of $334,018, so the same answer comes out of the margin formula. Labour plus overhead per billable hour, divided by one minus 0.135:

• Technician: $59.30 plus $39.02 is $98.32, divided by 0.865, which is $114 an hour
• Owner: $110,000 over 1,060 hours is $103.77, plus $39.02 is $142.79, divided by 0.865, which is $165 an hour

Two rates rather than one, because the owner's hour and the technician's hour do not cost the same and a blended $136 quietly subsidises the expensive one with the cheap one. Charge $110 across the board because that is the going rate, and you are below the technician's own recovery line before the owner has picked up a tool.

If the honest number is above what your market will pay, the answer is to cut overhead, raise utilization, or change what you sell. Bidding under cost is a decision to lose money on a schedule.

Where the rate still leaks

Even at the right rate, particular jobs bleed.

• Change orders agreed verbally. The largest single source of unbilled labour in residential trades. Written, priced and signed before the work happens, or it is a gift
• Materials billed at cost. Materials carry ordering time, delivery, returns, waste and the cost of financing them until you are paid, and a markup recovers that rather than creating profit
• Flat-rate call-outs. A $150 diagnostic that runs two hours plus travel is a subsidy you are paying to be allowed to quote
• The last 10% of the job. Punch lists, callbacks and final cleanup are rarely in the quote and always in the calendar

Track actual hours against quoted hours by job for one quarter. The pattern is usually one or two job types doing most of the damage, and knowing which two is worth more than a rate increase.

What has to be visible monthly

You cannot see any of this from a bank balance. A trades business needs actual labour hours and materials against quoted, by job, closed monthly. It needs gross margin split by job type, because service calls, small renovations and large contracts behave nothing alike. It needs utilization per person, monthly, so a drift from 70% to 58% shows up in six weeks instead of at year end. And it needs a WIP and holdback schedule, so revenue earned but unbilled is a number rather than a surprise.

In QuickBooks Online that is projects plus a chart of accounts built for the trade. Set up once, it produces all four without anyone rebuilding a spreadsheet each quarter.

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General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.