Charge Out Rate Calculator

Article Contents

1. What is a Charge Out Rate, and Why Does it Matter?
2. Step-by-Step: How to Calculate a Charge Out Rate

What is a Charge Out Rate, and Why Does it Matter?

In project accounting, a charge out rate is the hourly rate you apply to a staff member’s time when billing clients or calculating internal project costs. It forms the foundation of how Hiro tracks project performance, margins, and financial outcomes. Setting charge out rates properly ensures that your project reporting reflects the full cost of delivering work. This includes:

• Time the person is paid but not working (e.g. leave, public holidays)
• Time spent on tasks that cannot be charged to a client (e.g. admin, training, setup time)
• Business overheads (e.g. rent, software, vehicles)
• A margin for profit

Using charge out rates helps you understand the true cost of delivering a project, price work accurately, and assess whether projects are genuinely profitable. Hiro relies on these rates to drive key metrics across your invoicing, WIP, and project health reporting.

Step-by-Step: How to Calculate a Charge Out Rate

The following steps walk through a typical approach to building up a charge out rate from salary, employment related on-costs, overheads, and profit margin. The examples are for illustration only and should not be taken as financial advice.

Every business is different, so it’s important to check your assumptions with your accountant or financial advisor, especially when it comes to leave entitlements, on-costs, and how overheads are treated.

1. Start with the Base Salary

Charge out rates are usually created per position, not per individual. This makes it easier to manage pricing consistently across the business, even if different people in the same role are on slightly different salaries.

That said, Hiro does support overriding charge out rates on a per-person basis if needed. You can also set different rates per project where required. For full instructions on how to configure charge rates per position, person, or project, see Configure Hourly Charge Rates.

If there’s a wide salary spread across people doing the same type of work, it may be a sign to refine your role definitions. For example, you might split a role into "Technician Level 1" and "Technician Level 2" and set a rate for each.

Start by selecting a representative base salary for the role you are modelling. This could be the average, the midpoint, or the typical amount paid to someone currently in that position.

Base Salary = $90,000

2. Add Employment-Related On-Costs

Once you’ve chosen a representative salary for the role, add the direct employment-related costs that come with hiring someone in that position. These are specific to the employment arrangement and should be included when calculating their total cost to the business.

These on-costs are not considered overheads because they are directly tied to the person’s employment package.

Common on-costs include:

• Superannuation at 12% (as of 1 July 2025)
• Leave loading, typically 17.5% of 4 weeks’ annual leave (about 1.35% of salary), where applicable. This depends on the employee’s Award or employment contract and may not apply to all roles.
• Payroll Tax, depending on your state and wage thresholds
• Fringe Benefits Tax (FBT) for any benefits provided outside of salary
• Phone or car allowances, if paid as part of their package
• Other direct entitlements specific to their role

These items can be bundled to estimate the Total Employment Cost (TEC) for the position.

Example (Base Salary = $90,000):

Super: $10,800  
Leave Loading: ~$1,215  
Total Employment Cost (TEC) = $90,000 + $10,800 + $1,215 = $102,015

3. Estimate Billable Hours per Year

Once you know the total cost of employing someone, the next step is to work out how many hours they actually spend doing billable work. This is important because your charge out rate needs to recover the full cost of their employment across only the hours that can be charged to clients.

You are not trying to cover the cost of someone’s salary across all the hours they are paid to work. Instead, you are spreading that cost over the smaller pool of hours where their time is generating revenue. This is what makes the rate higher than just their hourly wage.

Start by looking at the total number of paid working hours for a full-time employee:

52 weeks × 38 hours = 1,976 total hours

Then subtract time they are paid but not doing billable work:

📝 Note: The number of public holidays can vary slightly by location. In Queensland, for example, there are usually 12 full public holidays, including a local show holiday like the Ekka in Brisbane. Check the correct number for your region.

Example:

All leave = 228 hours
Public holidays = 91 hours
Available working hours = 1,976 - 228 - 91 = 1,657 total hours

🔹 Important: Non-billable Time Depends on the Position

Non-billable time includes any paid time that can’t be billed directly to a client project. This varies depending on the type of work someone does.

Common non-billable activities include:

For office-based roles:

• Internal meetings or reporting
• Timesheet entry and admin
• Professional development and training
• Business development
• Staff management or mentoring

For field or site-based roles:

• Equipment maintenance or servicing
• Toolbox talks and pre-start briefings
• Travel between jobs (if not billable)
• Site inductions or mobilisation
• Loading/unloading gear or setup/packdown

These activities are still valuable, but they reduce the number of hours that can be billed to clients. This is why we use billable hours in the rate calculation — to make sure those costs are still covered.

Typical benchmarks:

Example:

1,657 available working hours × 70% = 1,160 billable hours

4. Calculate Base Hourly Cost

Now that you have both the total employment cost and the number of billable hours, you can work out the base hourly cost for the role. This is the amount you need to recover for every hour of billable work in order to cover wages and employment-related costs. It does not yet include overheads or profit.

To calculate it, divide the Total Employment Cost (TEC) by the number of billable hours:

Base Hourly Cost = Total Employment Cost ÷ Billable Hours

Example:

TEC = $102,015
Billable Hours = 1,160
Base Hourly Cost = $102,015 ÷ 1,160 = $87.94 per hour

5. Add Overheads

Once you know the base hourly cost for the role, the next step is to add an allowance for overheads. These are the general costs of running the business that are not tied to any one project or staff member, but still need to be recovered through the work you deliver.

You cannot bill these costs directly to a client, but they are real and recurring expenses that your business must cover to stay financially sustainable.

What Counts as Overhead?

Overheads include things like:

• Rent or office space
• IT systems and software subscriptions
• Vehicles, tools and equipment
• Insurance and legal costs
• Accounting and compliance
• General business admin and marketing
• Salaries for support staff (e.g. HR, finance, reception)

🔎 Note: Any goods or materials you on-charge to clients are not part of overheads. Those goods and materials are recovered separately on the invoice you send to your client. Similarly, support staff salaries (e.g. office admin) should be included in your overheads, not in the billable cost base.

How to Calculate Overhead Percentage

To express overheads as a percentage, calculate your total annual overhead costs, then divide that by the total billable employee cost base. That means adding up the employment costs (e.g. salaries, super, leave loading) for staff whose time is charged to projects.

Example:

Total overheads = $770,000
Total billable employment costs = $2,000,000
Overhead rate = $770,000 ÷ $2,000,000 = 38.5%

This method ensures the overhead burden is shared only across the time that can actually recover it. If you were to divide by the cost of all employees, including non-billable roles like admin or finance, you’d be double-counting — since those support roles are already included in your overheads.

Why use a percentage?

Using a percentage is a common approach in consulting and professional services. It reflects how overheads behave in the business, as indirect costs that must be recovered across all billable work rather than tracked per person or per project.

It also scales easily across different roles and supports consistent pricing and forecasting. This is why accountants and advisors commonly recommend this method when modelling charge out rates.

Some businesses prefer to calculate overheads as a fixed dollar amount per staff member instead of using a percentage. This works well when detailed costs are already known and being tracked at the individual level. Either method is valid. The important thing is to account for all non-project costs in a consistent way before applying your profit margin.

Example:

Base hourly cost = $87.94
Overhead rate = 38.5%
Overhead-adjusted = $87.94 × 1.385 = $121.80 / hour

6. Add Profit Margin

Once you’ve accounted for wages, on-costs, and overheads, the final step is to apply a profit margin. This ensures the business earns above break-even and has capacity for reinvestment, retained earnings, or profit distributions.

There is no universal rule for the right margin. Many businesses aim for a 10 to 30 percent margin, depending on their goals, risk appetite, and market.

To apply a margin, multiply your overhead-adjusted hourly cost by a factor that reflects your profit target.

Example:

Overhead-adjusted hourly cost = $121.80  
Profit margin = 20%
Final charge out rate = $121.80 × 1.2 = $146.16/hour

📘 Tip: This margin contributes to your business’s EBIT — Earnings Before Interest and Tax. Targeting a 10 percent EBIT is considered lean, as income tax, reinvestment, and any distributions still need to be covered. Many professional services businesses aim for a 15 to 30 percent EBIT to allow for healthy and sustainable operations.

7. Round to the Nearest $5 (Optional, but Common Practice)

Once you’ve calculated your final charge out rate, it’s common practice to round it up to the nearest $5 increment.

This avoids awkward figures like $146.16 and helps maintain a clean, consistent pricing structure that’s easier to communicate to clients and staff. Rounding up also provides a small buffer that helps preserve your intended profit margin.

Example:

Calculated rate = $146.16
Rounded charge out rate = $150/hour