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Methodology

Labour Recovery Rate Planner methodology

Convert paid hours, productive hours, wages, on-costs and overhead into the minimum ex-tax labour charge rate needed to protect your target margin.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Productive cost per hour
productiveCostPerHourExTax = (wages and on-costs + overhead to recover) ÷ productive hours

Where

productiveHours
Productive hours (hours/period)Source: Business record
wagesAndOnCostsExTax
Wages and on-costs (currency units/period, ex tax)Source: Business record
overheadToRecoverExTax
Overhead to recover (currency units/period, ex tax)Source: Business record
productiveCostPerHourExTax
Productive cost per hour (currency units/productive hour, ex tax)Source: Calculated output
Minimum charge rate
minimumChargeRateExTax = productive cost per hour ÷ (1 − target margin)

Where

targetMargin
Target labour margin (decimal fraction of labour charge revenue)Source: User assumption
productiveCostPerHourExTax
Productive cost per hour (currency units/productive hour, ex tax)Source: Calculated output
minimumChargeRateExTax
Minimum charge rate (currency units/productive hour, ex tax)Source: Calculated output
Productive utilisation
utilisationRate = productive hours ÷ paid hours

Where

paidHours
Paid hours (hours/period)Source: Business record
productiveHours
Productive hours (hours/period)Source: Business record
utilisationRate
Productive utilisation (decimal rate)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The rows below come directly from the exact engine using the visible default fixture.

Paid hours
160 hours/period
Productive hours
120 hours/period
Wages and on-costs
7,200 currency units/period, ex tax
Overhead to recover
2,400 currency units/period, ex tax
Target labour margin
0.2 decimal fraction of labour charge revenue

Calculation and outputs

  1. Productive cost per hour

    productiveCostPerHourExTax = (wages and on-costs + overhead to recover) ÷ productive hours
    Paid hours
    160 hours/period
    Productive hours
    120 hours/period
    Wages and on-costs
    7,200 currency units/period, ex tax
    Overhead to recover
    2,400 currency units/period, ex tax
    Productive utilisation
    0.75 decimal rate

    Engine result: 80 currency units/productive hour, ex tax

  2. Minimum charge rate

    minimumChargeRateExTax = productive cost per hour ÷ (1 − target margin)
    Productive hours
    120 hours/period
    Target labour margin
    0.2 decimal fraction of labour charge revenue
    Productive cost per hour
    80 currency units/productive hour, ex tax
    Productive utilisation
    0.75 decimal rate

    Engine result: 100 currency units/productive hour, ex tax

  3. Productive utilisation

    utilisationRate = productive hours ÷ paid hours
    Paid hours
    160 hours/period
    Productive hours
    120 hours/period
    Productive cost per hour
    80 currency units/productive hour, ex tax

    Engine result: 0.75 decimal rate

Example

The rows below come directly from the exact engine using the visible default fixture.

Productive cost per hour
80.00
Minimum charge rate
100.00
Productive utilisation
75%

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

A charge-out rate is only as reliable as the loaded-cost and productive-hours bases entered.

3. Validation and boundary checks

  • All values must be finite and remain inside the visible input boundaries.
  • All money values use one consistent ex-tax basis and period.
  • Rates must remain inside their engine-owned boundaries.
  • Productive hours cannot exceed paid hours.
Paid hours minimum
paidHours ≥ 0.01 hours/period — A lower value is rejected before calculation.
Paid hours maximum
paidHours ≤ 100,000,000 hours/period — A higher value is rejected before calculation.
Productive hours minimum
productiveHours ≥ 0.01 hours/period — A lower value is rejected before calculation.
Productive hours maximum
productiveHours ≤ 100,000,000 hours/period — A higher value is rejected before calculation.
Wages and on-costs minimum
wagesAndOnCostsExTax ≥ 0 currency units/period, ex tax — A lower value is rejected before calculation.
Wages and on-costs maximum
wagesAndOnCostsExTax ≤ 10,000,000 currency units/period, ex tax — A higher value is rejected before calculation.
Overhead to recover minimum
overheadToRecoverExTax ≥ 0 currency units/period, ex tax — A lower value is rejected before calculation.
Overhead to recover maximum
overheadToRecoverExTax ≤ 10,000,000 currency units/period, ex tax — A higher value is rejected before calculation.
Target labour margin minimum
targetMargin ≥ 0 decimal fraction of labour charge revenue — A lower value is rejected before calculation.
Target labour margin maximum
targetMargin ≤ 0.99 decimal fraction of labour charge revenue — A higher value is rejected before calculation.

4. Assumptions and source classification

  • All hours, utilisation, costs, rates and recovery targets are supplied by the user.
  • Money values use one consistent ex-tax basis.
  • No provider fee, jurisdiction, benchmark or demand forecast is embedded.
  • Raw engine precision is retained until display.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • Results depend on the completeness and classification of the entered business records.
  • The planner does not forecast demand, utilisation, supplier terms or project outcomes.
  • This is educational business decision support rather than accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

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