Quick answer
A charge-out rate is the hourly price you bill for each person's time. Build it from the true hourly cost of that person (wage plus KiwiSaver, ACC, holiday pay and other on-costs), divided by realistic billable hours, plus a share of overheads and a profit margin. Most New Zealand trades and service firms find billable hours are far fewer than paid hours, which is why rates based on wages alone come out too low.
Key points
- Start with the full employment cost, not the hourly wage.
- Divide by billable hours, which are often 65–80% of paid hours.
- Add overheads per billable hour, then a profit margin on top.
- Revisit the rate every April, when minimum wage and KiwiSaver changes take effect.
The most common pricing mistake in New Zealand service businesses isn’t charging too little for materials. It’s underpricing time. A rate set by looking at what competitors charge, or by doubling the wage, often fails to cover the hours nobody can bill: travel, quoting, training, sick days, the Monday morning toolbox meeting. Building a charge-out rate from the ground up fixes that.
What goes into a charge-out rate?
Four layers, stacked:
- The true cost of each paid hour for the person whose time you’re billing.
- The billable-hours adjustment, because not every paid hour can be charged.
- Overheads spread across the billable hours.
- Profit on top.
Leave out any one and the rate is too low.
Step 1: what does an hour of a person really cost?
The wage is only the start. For employees in New Zealand, typical on-costs include:
- KiwiSaver employer contributions of at least 3.5% of gross pay from 1 April 2026 (rising to 4% from 1 April 2028), plus employer superannuation contribution tax.
- ACC work levy, based on liable earnings and your industry’s classification unit.
- Annual holidays: four weeks a year after 12 months’ service, paid at the greater of ordinary weekly pay or average weekly earnings.
- Public holidays: 11 national days plus your regional anniversary day, paid when they fall on a normal working day.
- Sick leave: 10 days a year for eligible employees.
- Vehicles, tools, phones, uniforms and training that belong to that role.
Our guide to the true cost of an employee works through these in detail.
Step 2: how many hours can you actually bill?
Start with paid hours (say 40 a week × 52 weeks = 2,080) and take out everything that isn’t chargeable:
| Deduction | Hours (illustrative) |
|---|---|
| Annual holidays (4 weeks) | 160 |
| Public holidays (about 12 days) | 96 |
| Sick leave (average used) | 40 |
| Travel between jobs | 150 |
| Quoting, admin, ordering | 120 |
| Training, meetings, downtime | 80 |
| Billable hours | 1,434 |
That’s about 69% of paid hours. Many owners are surprised; some find their real figure is lower still.
Step 3 and 4: overheads and profit
Add up annual overheads that aren’t tied to a particular job: rent, insurance, software, accounting, marketing, admin wages, phones, the owner’s non-billable time. Divide by the total billable hours across the team. Then add a profit margin, the return that pays for risk, reinvestment and the owner’s effort beyond a wage.
A worked example
Illustrative example. A Christchurch plumbing business employs a qualified plumber at $42 an hour for 2,080 paid hours, a gross wage of $87,360 a year.
| Item | Annual | Per billable hour (1,434 hrs) |
|---|---|---|
| Gross wages (including holiday and public holiday pay) | $87,360 | $60.92 |
| KiwiSaver at 3.5% plus ESCT (approximate) | $4,000 | $2.79 |
| ACC work levy (approximate) | $1,600 | $1.12 |
| Van, tools, phone, training | $14,000 | $9.76 |
| Direct cost of the plumber | $106,960 | $74.59 |
| Share of overheads | $28,000 | $19.53 |
| Break-even rate | $94.12 | |
| Profit margin (20% of the rate) | $23.53 | |
| Charge-out rate (excl. GST) | about $118 |
The plumber earns $42 an hour; the business needs to charge about $118 just to make a 20% margin. A rate of $85, which might feel generous next to the wage, would lose money on every hour billed.
What about materials and subcontractors?
A charge-out rate covers time. Materials and subcontracted work need their own markup, because the business carries risk on them: it orders, stores, waits to be paid and sometimes replaces faulty items. Many trades add a markup to materials to cover handling, wastage and the cash tied up between paying the supplier and being paid by the customer. Whatever you choose, quote it consistently and make sure it’s built from costs excluding GST. Our page on margin vs markup shows how to convert a target margin into the markup you apply.
For fixed-price quotes, build the price from estimated hours at your charge-out rate plus materials at cost plus markup, then add a contingency for the unknowns. Track actual hours against the quote on every job; it’s the fastest way to find out whether your estimating or your rate needs work.
How do you check your rate against reality?
Track actual billable hours for a few months, by person. If they’re lower than you assumed, either the rate rises or the business finds ways to reduce non-billable time (better scheduling, less travel, quoting templates). Then look at actual job margins: if quoted jobs regularly come in over time, the rate isn’t the only problem.
The price-rise calculator is useful once you know the right rate: it shows how many hours or jobs you could lose after a rise and still earn the same gross profit.
When should you update the rate?
At least once a year, and April is the natural time. The adult minimum wage changes from 1 April (to $23.95 an hour from 1 April 2026), the default KiwiSaver contribution rose on the same date in 2026, and many businesses review pay at the start of the tax year. Our page on repricing after the minimum wage rise covers how to flow those changes through.
Pricing properly, then growing
A correct charge-out rate is the foundation for every growth step: the next hire, the second van, a bigger contract. If the numbers now support that step and you’d like funding to take it, we can help you look at options. You can check what your business could qualify for in about a minute.
When the rate works and the plan needs capital
Once your pricing carries the business, the question becomes how to fund growth without starving day-to-day cash. We consider unsecured options for trading businesses, sized on turnover and bank statements, and loans secured on property. There’s no credit check when you first enquire, your enquiry isn’t passed to other lenders, and a real person on our New Zealand team reads it. Give us accurate answers and the first call can get straight to what’s realistic. Start here.
Frequently asked questions
What's a typical charge-out rate multiple of wages?
Many service businesses find their charge-out rate ends up somewhere around two to three times the hourly wage once on-costs, non-billable time, overheads and profit are included. Your own figures are what matter, so build it up rather than using a rule of thumb.
Should my charge-out rate include GST?
Quote it excluding GST to business customers and make that clear, or GST-inclusive to consumers. Prices to consumers must include or be clear about GST. Build your rate excluding GST, since GST passes through to Inland Revenue.
How many billable hours should I assume?
Start from paid hours, then subtract annual leave, public holidays, sick leave, training, travel, quoting and admin. For many trades and professional firms the result is roughly 1,300 to 1,600 billable hours a year per full-time person, but track your own.
Do owners need their own charge-out rate?
Yes. An owner's time has a cost even if they don't draw a wage, and much of it is non-billable management. Set a rate that pays a market wage for the billable part of their week.