Contractor labor costs

13 Replies

Hello everyone, 

I wanted to know if $30/hour in North Jersey is a reasonable or too high to pay a contractor for labor.  He is someone I know that is very good.  He just started to be self employed and has no real experience in pricing out a rehab, so we though of an hourly pay for labor.

He would do pretty much most of the interior work, from flooring and tile installation, cabinet installation and trim.

Thanks in advance for feedback.

At $30 per hour, your friend will not be in the contracting business for very long. That may be decent pay for an employee of a contractor but for someone who is going to need to start paying for all of the overhead himself it won't come close to being enough. 

I agree, that is cheap, and could either lead to him regretting his decision, or milking hours along, as being paid hourly isn't a big incentive to finish fast. Did he give you an idea how many hours he assumes it will take?

What @Tom W.  said. I'm not familiar with New Jersey but I'd expect a minimum of double that. 

I am a contractor in KY. There is no way to run a business at that rate. Seeing he is just getting started for himself it may be ok, but he will soon realize he needs to at least double that.

Tough situation. As far as labor cost goes. I am a Contractor with my own business. $30/hr is cheap labor if you are talking about a properly scheduled out Scope of work. With time lines attached to certain milestones within the scope of work. 

The reason I say this is because a hard quote based on hourly work is mostly calculated. Loss is mitigated by small percentages for incidentals. With all this math already calculated.  

$30/hr with a loosely bonded time frame means how fast someone thinks they are working and how fast you think they are working are directly connected. Where as with an estimate the price does not fluctuate with the temperature,weather,health of the Contractor.  House renovation is an evolving process. The hrs "put in"sometimes are not directly tied to production.( I.e. Designing, changing ideas, most importantly problem solving). A lot of time spent in home Remodeling is thinking, problem solving, seeing how multiple factors all marry together. 

A suggestion would be, use that $30/hr as a starting point. Both of you walk the property with a Statement of Work checklist, discussing time expectations  on items.  This allows both of you to have a good idea of exactly what needs to be done. Agree in real time regarding realistic time frames on each item. This then allows him to add those transparent numbers up to a total estimated hours, ( giving him the practice and confidence in his estimating ability)that can then be multiplied by the $30/hr add  in 10% For unforeseen issues and you then have a transparent number that you can both start to work from. 

Best Friend, Cousin, Husband, it never hurts to have transparency. It takes out the uncomfortable feeling of working with friends and family  

30 is fair for someone skilled and trustworthy. Better off paying most people by the job though unless you are there to supervise because you can bet on them inflating their hours or dicking around.

Thanks for the feedback guys.

It was actually his first job after he left his employer, so he was excited to at least fill his schedule.  I guess now I see that that isnt enough.  Being that i know him I also want to be reasonable and pay him fairly. That also means I will need to include more for labor when i run my numbers.  

For me it seemed like a good deal knowing that he's not milking time away but putting in an honest work.

I would gladly pay him more knowing that i will get a fair assessment as well.  I rely on the contractor to only work on the necessary items and scope of work that was discussed and I think I'm getting that from him.  So getting to an accurate quoting is a key that we both want to accomplish.

Anthony - thanks for the suggestion. I will definitely try to have transparency, and also a realistic time frame.  On the first project it was really unknown how long it will take as he worked alone, and couldnt predict an accurate time frame .  I'm pretty confident that hes getting better and each project will get easier for both of us.

I agree with @Anthony Portella .  You are in a business and should act accordingly.  He is learning on your dime so if $30 per hour is enough for him then that's ok.  Just be very detailed as to his scope of work and the hours associated with each project element.  He won't be working alone I'm sure so he is probably learning how to manage other contractors/workers.  He won't be as fast and he will make some mistakes along the way.  Ensure that when the standards aren't met he feels the pain so to speak.  Remember every dollar that goes to him comes out of your back pocket, and takes away from your benefit.  Be fair and good luck.  

I doubt he's got insurance with a rate like that.

@Leszek Walkowicz That's too low. Here is our cost in CA. Direct labor rate (less 8% employee taxes + fica/state tax) + 8% employer tax + 1-2% General Liability + 12-50% Worker's comp insurance + 10% overhead + 10-20% profit (sub 10k contracts at 20%, 200k+ at 10%). So paying him at 30/hr is like paying our guys at 15/hr less employee taxes, so around 12/hr take home.

The fact the you are asking this question for your friend is exactly why so many blue collar trade owners go out of business or struggle for ever. Your friend needs to know what his true cost of business is (Breakeven) and no two companies are the same. So the question you are asking is impossible for anyone in this forum to answer unless we knew exactly what his overhead was (truck costs, tool expenses, auto, worker comp, health insurances, rents, advertising, cell phone, marketing collateral, vacation time, credit card fees, accounting, software, office supplies, computer expenses, etc...) to name a few. This question is much like asking someone what is the cost  of 2 bags of groceries? The answer would be "it depends on whats in the bag"  you know what I mean! I am a previous HVAC business owner (sold business) and this is a HUGE issue in our trade as well. Many contractors worked for someone else and are excellent tradesmen but have no business education. They then go off on their own starting thier own business, what Michael Gerber the author of the EMYTH book call the "entrepreneur seizure". My suggestion is your friend seeks some buisness training ASAP before he gets himself in a world of financial hurt! Best of luck to your friend! 

@Leszek Walkowicz

Are we talking about a true contractor who contracts with other companies to perform the work, or a handyman, or the contractor's handyman? That makes a huge difference, and I see people use the 'contractor' name for all 3 of these. Most handyman don't carry insurance, the majority who do use a 'carpenter' policy that won't cover them anyway, they don't carry worker's comp policies, and don't have the same overhead as a true contractor.

As a handyman, I don't like hourly rates. If I have invested in myself to learn how to perform a task faster than my competition, I'm fine sharing part of that with my customer in the form of a more competitive quote, but I need some ROI too.

As a contractor, I don't like hourly rates. Same as above, plus its easier to hold my sub's costs if we work with a fixed price.

Basically, I hate working for hourly rates. I'd rather use a base price, then upfront state if what the unknowns might be and what they are expected to cost.

However, If he's a handyman and OK working hourly, $30 cash (or non-reported checks) I think is fair to all for most work, especially since you'll front the $ for materials. For a true contractor paying his own SKILLED labor, heck no, way too many overhead items involved for that to make sense, since there is no way he'd be paying his labor as low of a number that would work.

Consider too what your per-job cost would be with an licensed and insured company, and compare that to what you are paying in total to your by-the-hour guy.

As an aside - many contractors make the mistake of calling their markup their profit. Yes, it is your profit, but your profit margin is what matters. Marking up your job 20% only gets you a 16% margin, meaning your profit is only 16% of your revenues. That's an issue that's put many out of business. Instead of marking up 20%, you should be doing [cost]/(1-0.20) to get your price to your customer in order to earn 20% margin. That just made you an additional $5k per $100k in costs.

This is a great discussion, thanks for everyone's comments about the hourly wages! For a handyman, I just got quoted $40/hour and $50/hour on roofs and in crawlspaces. He is not licensed or bonded, and will not be doing our major electrical or plumbing. I feel like it's a fair price as he has the tools and experience.

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