The Hourly Rate a Solo Contractor Needs to Make $100,000

Paying yourself $100,000 does not cost the business $100,000. Employer payroll taxes ride on top of a wage, and this model budgets $107,692 of total owner compensation cost to deliver a $100,000 gross target.

This model assumes an S-corporation paying its working owner $100,000 of covered W-2 wages. Federal employer payroll taxes are modeled at $7,692, which is 7.692% of the wage: $6,200 Social Security, $1,450 Medicare, and $42 FUTA assuming the maximum state unemployment credit. State unemployment, workers compensation and employer-provided benefits are not modeled, because the model specifies no state, coverage election or benefit plan.

A sole proprietor taking draws has a different structure entirely and should not apply this load: payments to yourself are not deductible wages, the business pays no employer payroll tax on them, and self-employment tax is calculated personally on net earnings.

A 40 hour week across 52 weeks is 2,080 available hours. Almost none of that is fully billable.

That is the most consequential number in the model. Every admin hour, every supply run, every rained-out morning still has to be paid for by the hours you do bill. Divide a target income by 2,080 instead of 1,332 and your rate comes out 36% short before you have made a single other mistake.

This model uses the same $56,000 of non-owner overhead built line by line in the companion fixed-price model: home office, insurance and bonding, bookkeeping, marketing, vehicle, core software, and six smaller named lines.

Every amount is a stated planning assumption, not an industry average. What belongs in each category, and what does not, is in the 21 overhead categories guide.

Owner compensation is not in that $56,000. Step 4 handles it.

Labor on jobs is job cost. Compensation for selling, estimating, and running the company is overhead. In an hourly business the split falls out of the hour count you already have: billable hours are production, the rest is the business.

Splitting the owner's pay is also what turns the $56,000 non-owner budget into the total overhead the model has to recover. Both numbers appear later, so it is worth being precise about which is which:

Revenue has to cover total overhead, profit, owner production labor, and materials. Two of those are fixed dollars and two are shares of revenue, so solve for revenue directly. Call it S, and note that the $94,727.70 below is total overhead, the $56,000 budget plus the owner's non-field pay:

Materials are 33% of revenue, $87,126.39, and they pass through at cost. They cannot pay for anything else.

Labor revenue divided by billable hours:

If that number is uncomfortable, it should be. Every assumption behind it is modest, and none of them is unusual.

Because materials pass through at cost, they contribute nothing toward overhead or profit. Labor has to carry all of it.

Against $68,964.30 of owner production labor, $176,892.97 of labor revenue is a 2.56 multiplier on labor alone, while the blended multiplier across the whole business is only 1.68. Those are not competing numbers. They are the same business measured against two different bases, which is exactly the confusion the markup vs margin guide exists to clear up.

Here is what happens to a contractor who reaches for the familiar 1.5 and applies it to labor. Their labor costs $51.78 per billable hour, the same allocation rate from step 4, so marking it up 1.5 times gives a rate of $77.66 an hour. That sounds reasonable to a lot of people. Across a full year it is not: