Wages are only the starting point
An employee paid €20 per hour usually costs a business more than €20 per paid hour. Employer payroll charges, paid leave, insurance, benefits, training, protective equipment and administration may all matter. Exact obligations depend on country, contract and employer.
Distinguish paid hours from productive hours
A person may be paid for holidays, training, travel, meetings and downtime that cannot be billed directly to a customer. Dividing annual employment cost by all paid hours understates the cost of an hour you can actually sell.
Calculate the loaded rate
Loaded hourly cost = annual employment cost ÷ realistic productive or billable hours. For example, if annual employment-related cost is €48,000 and 1,400 hours are realistically billable, the modeled cost is €34.29 per billable hour. These figures are illustrative and not statutory rates.
Include job-specific expenses
Travel, site allowances, accommodation, special tools and subcontracted support can increase the cost of a particular job. Keep these visible rather than hiding them in an arbitrary hourly rate. Avoid counting the same cost in both the rate and a separate expense row.
Turn cost into a selling rate
Your selling rate also needs to support company overhead and your desired profit. If the all-in cost per billable hour is €40 and the target margin is 20%, a modeled selling rate is €40 ÷ 0.80 = €50 per hour, before relevant taxes.
Account for utilization
A higher wage is not automatically a higher cost per useful hour if the employee is more productive. Conversely, frequent unbillable travel or idle time can make a lower wage expensive. Track actual productive hours and revisit assumptions regularly.
Use local rules and real payroll data
Payroll taxes, pension obligations, leave and insurance differ significantly between jurisdictions. Verify figures with your payroll provider or accountant. This guide is a costing framework, not payroll, employment-law or tax advice.
Examples are illustrative, exclude applicable taxes unless stated, and are provided for general educational purposes. Check local regulations and consult a qualified adviser for decisions specific to your business.