Owner-Operator Pay in Your Rate: Wage vs. Profit

Two jobs, two lines

Think of the owner's pay as two separate lines:

• A wage for your labor. What it would cost to have someone else do the hours you work in the field. It is a cost, like any tech's pay, and it goes in the break-even rate.
• Profit. What the business earns after every cost, including that wage. It pays you for the risk, funds a new truck or a slow winter, and is a percentage of the price in this site's method.

If the rate covers the wage and nothing else, the shop breaks even. You get paid for working and the business earns nothing. Any repair bill, price drop or slow month then comes out of your wage.

Choosing the wage line

There is no single right number for the wage line. A practical yardstick is what a hired tech would cost. BLS's May 2025 wage estimates for plumbers, pipefitters and steamfitters put the national median at $30.67 an hour and the 75th percentile at $40.92 (BLS OEWS). Multiplied by 2,080 paid hours, those are $63,793.60 and $85,113.60 a year. The 75th percentile is only an example here; use the figure that fits your market and your skills, and check your own trade's BLS profile.

The wage line pays for the hours you work. Estimating, ordering, bookkeeping and phone calls are worked hours that are not billed, and billable efficiency, not the wage, absorbs them (see below).

Same shop, four settings

The inputs below are the ones from the labor rate guide's owner example: 2,080 paid hours, 208 hours of paid time off (8 holidays, 11 vacation days, 7 sick days), so 1,872 worked hours; overhead of $30,000 a year (an example); truck cost of $16,719.14 a year (the site's truck calculator default). No benefits or workers' comp are included for the owner. Billable efficiency is 65% of worked hours, which gives 1,216.8 billable hours. We ran each setting through the site's owner-operator engine.

Setting 1 pays a median wage and no profit at all. The jump from setting 1 to setting 2 is $18.76 an hour. It comes from a wage line that is $21,320.00 a year higher, plus $1,506.21 more employer-equivalent self-employment tax on it. Going from setting 2 to 3 adds the profit: the rate is the break-even $113.29 divided by 0.90, which is $125.87.

At the unrounded rate of $125.8728, 1,216.8 billable hours bring in $153,162.03. That is $137,845.82 of cost plus $15,316.20, the 10% profit (a cent or two of rounding aside). The profit is a separate line you can leave in the business or take out; it is not part of the wage.

The tax line

For a sole proprietor, the IRS describes self-employment tax as similar to the Social Security and Medicare taxes withheld from wage earners' pay (IRS). The rate is 15.3% (IRS) on 92.35% of net self-employment earnings, owed once those earnings reach $400, and half of it is deductible in figuring adjusted gross income (IRS Topic 554).

The site's method adds only the employer-equivalent half to cost. The step-by-step figuring for the $85,113.60 wage is in the labor rate guide's owner example; the half comes to $6,013.08. The other half is paid out of your pay, as an employee's share comes out of theirs.

Two limits matter. The engine figures that tax on the wage line only. The IRS defines net earnings as gross income minus ordinary and necessary business expenses (IRS Topic 554), so for a sole proprietor the profit line is taxed too, and the tool does not model that. Second, none of this covers income tax. How your business is set up changes the answer, and so does an S corporation's reasonable-compensation rule; ask an accountant.

When your structure pays you wages

A sole proprietor is someone who owns an unincorporated business by themselves, and a single-member LLC that elects to be taxed as a corporation is not one (IRS). For an S corporation, the IRS says shareholder-employees must be paid reasonable compensation for their services before non-wage distributions are made (IRS).

If your business pays you through payroll, the employee method in the labor rate guide may fit better than the owner mode: your wage plus the employer's payroll taxes. This is general information, not tax advice. Which structure you have, and what to pay yourself, is a question for your accountant.

Your office hours are not billable

Setting 4 is the easy one to miss. If you spend half your worked hours estimating, ordering, collecting and answering the phone, the same wage, overhead and truck have to be earned in 936 hours instead of 1,216.8. The break-even rate rises from $113.29 to $147.27, and the 10% rate to $163.63.

That is $37.76 an hour more for the same pay and the same profit. Published billable-efficiency figures vary widely; the billable efficiency guide explains what they measure and how to measure your own. If the office work is going to be handed to a hire, that hire's pay goes in overhead, not in your wage line.

Bottom line

Put your wage in the rate as a cost, put profit on top as its own line, and size both for the hours you really bill. A rate that only pays your wage leaves the business with nothing to absorb a bad month.

Run your own numbers in the owner-operator mode of the labor rate calculator. If the result is above what you charge now, the guide to raising prices lays out how to stage the change.