Where a Contractor's Non-Billable Time Gets Paid For
You set a $100,000 target. Non-billable hours do not add a second cost on top of it, they change where that same cost has to be recovered. The rule is that it gets recovered exactly once.
The assumptions
This model assumes
- One solo operator, no employees, the same business as the published hourly model
- $100,000 gross owner compensation target, loaded to $107,692 of modeled cost to the business
- 2,080 compensated hours a year, a model input, of which 1,332 are billable
- $56,000 of non-owner overhead across twelve named lines
- 5% net profit target, $13,200.97 on $264,019.35 of revenue
- Materials and subcontractors at 33% of revenue, passed through at cost, carrying no overhead or profit
The model, step by step
You set a goal: $100,000 of gross compensation for the year. Under this model's entity assumption the business has to budget $107,692 to deliver it, because employer-side payroll costs ride on top of a wage.
The model then has 2,080 compensated hours and 1,332 billable hours, and dividing that same compensation by each gives two different rates.
| Rate | Divide $107,692 by | Result | What it is |
|---|---|---|---|
| Job-cost allocation rate | 2,080 compensated hours | $51.78 | The allocation rate applied to each billable job hour |
| Fully allocated cost | 1,332 billable hours | $80.85 | What every sellable hour carries once non-billable time is spread across it |
Neither rate is more real. They belong to different allocation systems, and each is correct inside its own. The published model uses the first and recovers the difference through overhead.
The compensation for the 748 hours that never reach an invoice does not vanish and is not absorbed. The model books it as overhead, where it sits beside rent and insurance.
Set the non-billable compensation beside the twelve named non-owner lines.
| Overhead component | Amount | Share |
|---|---|---|
| Non-owner overhead, twelve named lines | $56,000.00 | 58.4% |
| Owner's non-billable compensation | $38,727.70 | 40.9% |
| Total overhead | $94,727.70 | 100% |
For scale, four of the named lines in the published model, insurance at $8,000, vehicles at $13,000, software at $4,000, and rent and utilities at $6,000, total $31,000 between them. The non-billable compensation is larger than all four combined.
Every dollar belongs in exactly one place, either job cost or overhead, and the markup has to match the classification it was built for. There are two ways to handle the compensation for non-billable hours, and both work.
Pay it from overhead, which is what the published model does. Charge labor into job cost at $51.78 per billable hour, keep $38,727.70 in overhead, and apply a multiplier that recovers all overhead and profit.
Or pay it in the rate. Use $80.85 per billable hour as the labor pricing cost base, remove $38,727.70 from overhead because that compensation now sits inside the hourly base, and apply the matching multiplier against the smaller overhead pool.
The $80.85 is a pricing base, not a bookkeeping instruction. It contains compensation for estimating and admin time, which should not be coded to jobs in the books.
Both multipliers apply to labor cost only. Materials and subcontractors are added afterward at cost and are never multiplied, which is why the labor figure has to be so much larger than the labor cost.
Read it top to bottom as the arithmetic. The two columns start from different cost bases, $51.78 an hour against $80.85 an hour, and land on the same $132.80 the customer pays. That is the whole argument in one table: where you put the non-billable time changes the cost base and the multiplier, and changes nothing the customer sees.
| Paid from overhead | Paid in the rate | |
|---|---|---|
| Labor cost base, the figure you multiply | $68,964.30 | $107,692 |
| The same base per billable hour | $51.78 | $80.85 |
| Multiplier applied to labor only | 2.56 | 1.64 |
| Labor revenue | $176,892.97 | $176,892.97 |
| Hourly rate charged, over 1,332 billable hours | $132.80 | $132.80 |
| Materials and subs, added at cost, never multiplied | $87,126.39 | $87,126.39 |
| Total revenue | $264,019.35 | $264,019.35 |
| Overhead the multiplier has to cover | $94,727.70 | $56,000.00 |
| Profit left over | $13,200.97 | $13,200.97 |
The published model bills labor at $132.80 an hour. Every billable hour recovers its own allocated labor cost and then carries a share of everything else.
Non-owner overhead alone is $56,000 across 1,332 hours, or $42.04 an hour. The rest is profit.
Every dollar of non-billable owner compensation has to land in exactly one place. Two ways to get it wrong, in opposite directions.
Paying it in the rate while leaving overhead alone
| Labor cost base, fully allocated | $107,692 |
| Overhead left unchanged | $94,727.70 |
| Non-billable compensation counted once, inside labor | $38,727.70 |
| Counted again, inside overhead | $38,727.70 |
| Overstated by | $38,727.70 |
The reverse error omits it. Charge $51.78 into job cost but use an overhead schedule that leaves out the $38,727.70, and the money is recovered nowhere; the price falls below what the model requires by the same amount.
What it means
Keep the two systems from mixing
Clamp carries your burden and allocation catalogs alongside the overhead tracker, so labor cost, overhead and markup stay on one set of assumptions instead of drifting apart between the estimate and the invoice.
Find your own billable hours first, because it is the number that decides everything downstream. Then decide where non-billable compensation lives, in overhead or in the hourly base, and make sure the multiplier you price with was built for that same choice. To check a rate against a real job, put one through the estimator and compare what it costs to what it would bill.
Sources & provenance
- The Hourly Rate a Solo Contractor Needs to Make $100,000 Clamp (owner-supplied)
- Self-employment tax (Social Security and Medicare taxes) Internal Revenue Service (official)
- Publication 15, Employer's Tax Guide Internal Revenue Service (official)