What Does Trade Work Really Cost?

Most trade workers get paid an hourly wage, although some service workers get paid on a commission basis depending on the value of jobs they finish. Rates vary in different parts of the country, generally in line with a regional cost of living, but for the purposes of illustration, let’s take an average of $25 per hour. That computes to $50,000 a year, which the Bureau of Labor Statistics is about the average for skilled trade workers, divided by 2,000 hours, which basically tracks full-time employment of 50 weeks at 40 hours of work per week (allowing for holidays and vacations). Again, these are rough estimates, and probably on the low side since the best trade workers tend to earn more than $25 an hour.

What most people don’t realize is that this is just a fraction of what it costs to employ a trade worker. Most employers also provide benefits such as health insurance, paid vacations and holidays, retirement plans, bonus plans, etc. These expenses might double or more what a trade worker actually costs the employer. When a contractor produces an estimate in bidding for a job, he might have to compute the direct labor cost at $50 an hour or more, even though he is paying the workers $25 an hour in direct wages.

A contractor’s hourly billing rate will be even higher when factoring in overhead. Overhead includes various fixed and variable costs required to run a business. It encompasses mortgage or lease payments for the building(s) a contractor operates out of, vehicles (a major expense), utilities (electricity, water, HVAC), tools, supplies, advertising, etc. Overhead tends to range from around 20% of a job’s cost for construction companies to upwards of 40% for a service company. Add it all up and the arithmetic shows that most trade employer have to bill their clients well over $100 an hour for each hour of labor provided, even though worker wages are a minor fraction of that amount.

None of this is of direct concern to a trade worker employed by someone else. Most trade workers only care about what they receive in their paychecks, plus the benefits that they view as free to them.

The reason I feel it worth mentioning is because once they gain a few years of experience, many trade workers decide to go into business for themselves. Many of them fail because all they see is what they get paid and not all the additional costs to their employer. They think, let’s see, I’m getting paid $25 an hour while my employer is charging $100 an hour for my labor. I’ll make a lot more staking out on my own!

That is stinkin’ thinkin’. It’s true that many trade workers earn more going into business for themselves, but only if they learn to charge enough for their services to cover all the additional costs besides wages. Do yourselves a favor. In addition to learning the technical skills of a trade, study the business side as well. Ask a lot of questions, read books and pursue some business education before you make a drastic leap by going into business for yourself. Success or failure will not be determined by how well you wield the tools of a trade. You can be the best craft worker in the world but still lose your shirt if you don’t understand the business side of trade work.