The short answer: add up the full cost of employing your workshop team and the overheads the shop carries over a year, then divide by the hours you can actually charge to jobs (not the hours you pay for). That gives your cost per productive hour. Your charge-out rate is that cost plus your margin.
Step 1: Total employment cost
For each person who works on jobs, add up everything it costs to employ them for a year, not just their wage:
- wages, including overtime and allowances you regularly pay;
- superannuation guarantee, which has been 12% of ordinary time earnings since 1 July 2025;
- workers' compensation premium;
- payroll tax, if your business is above your state's threshold;
- leave loading, PPE, tools, uniforms and training.
Step 2: Shop overheads
Add the costs of keeping the shop running for a year: rent, power, gas, equipment leases and depreciation, maintenance, consumables you don't charge to jobs, insurance, software, vehicles, and the wages of people who don't work directly on jobs, such as the office, estimating, supervision and management.
Step 3: Productive hours, the number most people get wrong
Start with the hours you pay for, then take out everything that can't be charged to a job:
- annual leave, personal leave and public holidays;
- training, toolbox meetings and safety time;
- cleaning up, maintenance and waiting for material or drawings;
- rework that can't be charged to the customer.
Most shops find their chargeable hours are well below their paid hours. The best way to find your real figure is to measure it from timesheets for a few months: hours booked to jobs divided by hours paid.
Step 4: Do the sum
Cost per productive hour = (total employment cost + total overheads) ÷ total productive hours
That's what an hour of shop time costs you to break even. Anything below it loses money, before you've made any profit.
Step 5: Add margin
Your charge-out rate is your cost per productive hour plus the margin you need to reinvest, cover risk and pay the owners. Decide that margin deliberately, rather than settling for whatever is left over.
One rate or several?
Many shops use one blended rate. If your work varies a lot, consider separate rates for different work centres: a CNC plasma or beam line costs more per hour to run than a manual saw, and a coded welder costs more than a trades assistant. Separate rates make quotes more accurate, especially when you price labour by operation.
Review it every year
Wages, super, insurance and rent change every year. Recalculate your rate at least annually, and whenever you add a big piece of equipment or change your team.
How we help
Our growth consulting works through pricing, margin and cash with manufacturing owners. In Factory Hub, labour rates are set per work centre or operation and flow into every quote, and timesheets show quoted against actual hours, so you can measure your real productive hours instead of guessing.
This guide is general information, not financial or tax advice. Check payroll obligations with your accountant.
Common questions
How do you calculate a shop labour rate?
Add the full annual cost of employing your workshop team and your shop overheads, divide by the hours you can actually charge to jobs, then add your margin.
What are productive hours?
The hours that can be charged to jobs, after removing leave, public holidays, training, meetings, cleaning, maintenance, waiting time and non-chargeable rework from the hours you pay for.
What is the super guarantee rate in Australia?
The superannuation guarantee rate has been 12% of ordinary time earnings since 1 July 2025.