Calculate your labour rate
The labour rate is the number every calculation hangs on: it decides whether an hour of work earns money or spends it. Enter your figures — the result appears immediately, in your browser, and nothing is sent anywhere.
Productive hours
Costs per year
Profit and risk
Result
United KingdomLabour rate, net
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- Productive hours per year
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- Break-even rate
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- Profit and risk margin
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Enter your figures.
Carries the rate into your workshop settings. From there Werkstattsystem turns tracked time straight into invoice lines.
How it is calculated
The calculator takes the same three steps a management accounts review takes.
- Productive hours. Public holidays, leave and sickness come off the working days of the year; what remains is attendance. Only part of that is billable — setting up, ordering, cleaning, training and waiting are work, but not labour values. That share is the productivity rate, and in independent workshops it typically sits between 70 and 85 per cent.
- Costs. Staff costs are gross pay plus the employer's share and special payments — carried here as one percentage. On top come the overheads of the business, which arrive whether or not a lift is occupied.
- Margin. The break-even rate holds the business at zero. Profit and risk have to go on top, or no year finances the next year's investment.
A worked example: the labour rate of a small garage
Take the workshop the calculator above starts with: 3 productive technicians, calculated with the starting values of the preselected country (United Kingdom). Those values come from published country data and are a point of departure, not a recommendation. The three steps below take exactly the path the calculator takes, with every number written out.
- Productive hours. From 261 working days a year, take away 8 public holidays, 20 days of leave and 8 sick days: 225 days on site. Times 7.5 hours a day, that is 1,687.5 attendance hours per technician. Only the productive share of 74 per cent can be billed, and the workshop has 3 productive technicians — which leaves 3,746.2 billable hours a year.
- Costs. £2,600 gross a month is £31,200 a year; with 15 per cent employer charges on top, one technician costs £35,880 and all 3 together £107,640. Add £55,000 of overheads and the year costs £162,640. Divided by the 3,746.2 productive hours, that is £43.41 an hour: the break-even rate.
- Surcharge. Break-even means the business ends the year at zero. 12 per cent for profit and risk turns £162,640 of cost into a yearly target of £182,157; spread over the same 3,746.2 hours, that is £48.62 net an hour. VAT is added on the invoice — it has no place in the calculation.
The most sensitive figure is the productive share, because it sits in the denominator. Run the same workshop at 84 per cent instead of 74, and the break-even rate drops from £43.41 to £38.25 — not a penny of cost has gone, only an assumption has become more optimistic. That is how rates come about that look plausible in January and are missing from the result in December.
Where the rate usually goes wrong
Almost never in the formula. Three places produce the overwhelming majority of rates that are too low:
- Productivity is set too high. Anyone calculating with 95 per cent is calculating with a technician who never takes a break and never waits for a part. Every percentage point too many lowers the rate and turns into a loss over the year.
- The overheads are incomplete. Rent and electricity occur to everyone. Tool wear, diagnostic subscriptions, training, accident insurance, waste disposal, software licences and the depreciation on the lift rarely all do.
- The profit margin is missing entirely. A break-even rate is not a price, it is the floor.
Understanding the rate, not just working it out
The calculator above produces a number. Whether it holds is decided by the values you put into it — and all of them sit in your own records, not in a rule of thumb. The sections below walk through them in order: where the productive hours come from, what an employee really costs, what belongs in the overheads, why covering costs is not yet a price — and what to do with the result when it surprises you.
Productive hours: from attendance to a billable hour
The calculation does not start with the hours you pay for, but with the ones you can charge. From the calendar year, weekends and public holidays come off first, then leave, sickness and training days. What remains is attendance — and that is not billable yet.
Between attendance and an invoice line sits everything else a workshop day demands: taking in jobs, ordering and collecting parts, moving vehicles, setting up and clearing away, rework at your own expense, waiting for an approval. That share is the productivity rate, and you do not have to guess it: divide the hours billed last year by the paid attendance hours of your productive staff. Your time tracking knows both numbers.
A worked example with round numbers, not industry figures: if 1,600 attendance hours remain after leave and sickness and three quarters of them are billable, you calculate with 1,200 hours — not with 1,600. The difference goes straight through to the rate, because it sits in the denominator.
Pay and on-costs: what an hour of skilled work really costs
Gross pay is the smaller part of what an hour of skilled work costs. On top come the employer's share of social security, the statutory levies, the accident-insurance contribution set by risk class, and everything you pay voluntarily or under a collective agreement: holiday and year-end pay, occupational pension, savings contributions, shift premiums, workwear, travel allowances.
In the calculator all of that sits in the surcharge on gross pay. The preset value is a starting value for your country; your own comes out of the payroll journal, by dividing one year's total employer cost by the gross payroll of the same year.
More important than the decimal place is who you count at all. Only productive staff belong in this calculation — the ones whose hours sit in the denominator above. Service advisers, the office, the parts counter and your own admin time are real costs, but they do not produce billable hours. They belong in the overheads; otherwise you are counting heads whose time never lands on an invoice.
Overheads: everything that runs when nobody is turning a spanner
Overheads are the costs that arrive even when no lift is occupied. The most reliable source for them is not your memory but a full financial year — take the annual total, not one month times twelve.
- Rent or lease, and an imputed rent if the building is your own
- Energy, water, heating, compressed air
- Depreciation and recurring inspection of lifts, machines and workshop equipment
- Tools, special tools, wear and replacement
- Diagnostic equipment, software licences, manufacturer portals, database subscriptions
- Insurance: liability, contents, electronics, legal expenses
- Disposal of waste oil, tyres, filters and hazardous materials
- Training, certification, qualification for high-voltage work
- Administration, tax advice, bank charges, memberships, marketing
- Wages of non-productive staff
- Workshop vehicles, collection and delivery service, courtesy cars
Two mistakes are by far the most common: items nobody thinks of because they are debited only once a year — and items that appear twice because the staff on-costs were already in the wage surcharge above. Go through the chart of accounts once in full instead of building the list from memory.
Profit: covering costs is not yet a price
The break-even rate is the floor at which your business comes out at zero — on the assumption that everything runs as planned. It never does. The margin is therefore not a mark-up on a finished price, but the part of the calculation that pays for the deviation.
Out of it come: the next lift and the next diagnostic unit, rework and goodwill, bad debts, months with thin utilisation, interest on tied-up capital, reserves and tax. If you run the business yourself, your own owner's pay belongs here as well — unless you have already put it into the overheads. It belongs in exactly once.
And it is the first thing to disappear: every discount, every unbilled half hour and every goodwill repair comes off the margin, never off the costs. A rate without a margin therefore has no buffer but a hole — it just does not become visible until the year-end figures.
One rate is rarely enough: mechanical, body, diagnostics, tyres
A single rate for the whole business assumes that every hour of work causes the same costs. It does not — work areas tie up different amounts of capital and demand different qualifications.
- Mechanical work is usually the base, and the structure this calculator is preset to.
- Body and paint tie up a jig, a booth, extraction and drying, and add environmental requirements and material costs. Estimating systems and insurers usually ask for these rates separately anyway, and for the paint material separately again.
- Diagnostics costs equipment, licences, manufacturer access and the person who can operate both — and it is hard to run alongside other work.
- Tyres run the other way round: lower qualification, hard seasonal peaks, but storage as a service in its own right with its own charge.
The way there is the same calculator, run several times: per area, with its staff, its productive hours and the share of the overheads that falls to it. Floor area, equipment value or headcount all work as a key — what matters is that you distribute the overheads completely and no item twice.
The market band: when you sit above or below it on purpose
The band the calculator puts next to your result is orientation, not a target. It tells you where your rate stands in comparison — not where it belongs.
You sit above it on purpose when you deliver something that explains the distance: specialisation in a marque or a technology, qualification for high-voltage work, classic cars, short lead times, collection and delivery, a courtesy car, an extended warranty. The reason then belongs on the outside too — in the conversation, on the website, on the invoice.
You sit below it only deliberately and for a limited time: when starting up, when building a customer base, when filling a gap you know is there. Working permanently below your own break-even rate is not a pricing strategy but a question of time.
And compare only what is comparable: net against net, and with an eye on the labour times behind the hour. A lower rate on more generous labour times produces the more expensive invoice in the end.
How often to recalculate — and how an increase lands
Once a year, when the figures for the closed financial year are in — that is the fixed date. In between you recalculate when there is a reason: after a pay rise or a collective settlement, on a new rent, on noticeably different energy costs, after a larger investment, when productive staff join or leave. The productivity rate you can follow more often than that; time tracking delivers it every month.
If an increase comes out of it, an orderly sequence helps more than a good justification:
- Set a date and announce it in advance, rather than mentioning it at collection
- Settle quotes and estimates that are already out at the old rate
- Tell regular and fleet customers first, and in person
- Check what running agreements say about price changes
- Change the price display, the website and the templates on the same day
Small steps at short intervals are easier to explain than one jump after years of standing still. And a rate you have derived is one you can defend calmly in conversation — you know what it is made of.
Frequently asked questions about the labour rate
What exactly is the labour rate?
It is the price of one billable working hour — not the pay your technician receives, and not their bare cost either. It contains the staff costs of the productive technicians, the business's share of overheads, and the margin for profit and risk. It is calculated net; VAT is added only on the invoice.
How do you calculate it?
In two steps. First divide one year's staff costs plus overheads by the productive hours of the same year — that gives the break-even rate. Then add the margin for profit and risk on top; the result is the labour rate, net. The calculator above does both as soon as your figures are in the fields.
What productivity rate should I enter?
Ideally your own: the hours billed over the last twelve months divided by the paid attendance hours of your productive staff. Only if you do not have those figures, work with the starting value in the field. Values near a hundred per cent describe no real business — they lower the calculated rate, and the gap only shows up in the year-end figures.
My result is below the prices around me. Have I miscalculated?
Usually not wrong, but incomplete. Check in this order: are all overheads in, including the ones debited only once a year? Is the productivity rate a measured value? Are only productive staff in the denominator? Is an owner's pay included? If the gap remains after that, it is a pricing question — the break-even rate is the floor, not the market price.
Net or gross — which number do I quote to the customer?
Calculation is always net: VAT is a pass-through item and has no place in a cost rate. Which number you quote depends on who you are talking to — private customers care about the amount they end up paying, while in trade and fleet business the net rate is the usual measure. The calculator shows you both.
What does one workshop hour cost me — and how is that different from the labour rate?
The cost per hour is the break-even rate: a year of personnel and overhead costs divided by the productive hours of that same year. The labour rate is the price you charge for it — break-even plus the surcharge for profit and risk. The calculator shows both, so you can see how much of the hour is cost and how much is left.
Do body, paint, diagnostics and tyres need rates of their own?
As a rule yes, as soon as those areas tie up their own bays and their own equipment. A jig, a spray booth or a manufacturer's diagnostic access costs differently from a lift, and insurers and estimating systems ask for body and paint separately anyway. The way there is this same calculator, once per area: with that area's productive staff, its hours and the share of overheads that falls on it.
Do I count my own hours as the owner?
Only the ones you actually spend on a vehicle, and only that share. If you are on the tools half the time, half a productive technician belongs in the calculation — the other half is administration and belongs in the overheads. Your own salary as owner belongs in the calculation exactly once: either in the overheads or in the surcharge, not in both.
How does the rate relate to flat-rate times?
The rate is the price of an hour; the flat-rate time is how long a job is allowed to take. Both end up on the invoice: standard time times rate. That is why comparing rates alone says little — whoever works to tighter standard times earns less at the same rate. Check both figures together when you compare yourself with other workshops.
More about Werkstattsystem
The result is a basis for calculation, not a price recommendation. What you can achieve in the market depends on location, specialisation and utilisation — the arithmetic only tells you where it starts paying off.
It continues where the rate turns into money: invoicing converts tracked time into invoice lines at this rate, and what form those invoices take is set out under e-invoicing. What the software itself costs is on the pricing page.