What an Hour of Labour Actually Costs

A homeowner reading that an electrician charges £60 an hour reasonably wonders who is getting £60 an hour. Nobody is. The gap between what an hour is charged at and what an hour is paid at is wide, and most of it is not profit.

This note takes the one labour rate in the UK that is actually published, the national agreement rate, and walks it to what an employer pays. It is the same exercise as walking a published building rate to the cheque a homeowner writes, done on the labour half.

There Is No Such Thing as “The” Labour Rate

The Construction Industry Joint Council Working Rule Agreement is the nearest thing the industry has to a published wage. From 20 July 2026 it holds six grades:¹

Top to bottom that is a spread of 24.4%, all of it legitimately called a construction labour rate. A figure quoted as “an operative hourly rate” with no grade attached could be any of six numbers, and on a labour-dominated trade guessing wrong is most of the difference between a keen price and a dear one.

Note the week: 39 hours, not 40, stated on the face of the table. Dividing the craft weekly rate by 40 gives £15.99 instead of £16.40, understating the hour by 2.5% and implying that the fortieth hour onwards is paid at basic when under the agreement it is overtime.

From the Wage to the Cost of an Hour

The basic rate is what the operative receives. It is not what the hour costs the person employing them. Take the craft rate through a year:

The National Insurance rate and threshold are the 2025 to 2026 figures,³ and the pension line is the employer’s statutory minimum of 3% on the qualifying earnings band, £6,240 to £50,270.⁴

Then divide by the hours that can actually be sold. A 39-hour week over 52 weeks is 2,028 hours, less the statutory 5.6 weeks of paid holiday,⁵ which at 39 hours a week leaves 1,809.6 productive hours.

That works out at £21.17 an hour, against a basic rate of £16.40. That is a factor of 1.29 before a penny of van, fuel, tools, insurance, training, supervision, quoting time, sick pay, the CITB levy, or the unpaid gaps between jobs, and before any profit at all.

An employer looking at a £60 charge-out rate is not looking at £44 of margin. They are looking at roughly £21 of unavoidable employment cost, a good deal of overhead, and a margin that is usually in single-digit percentages of turnover.

The April 2025 Step That No Wage Index Shows

On 6 April 2025 the employer National Insurance rate went from 13.8% to 15%, and the secondary threshold fell from £9,100 to £5,000 a year.³ The threshold move matters more than the rate move. On the craft wage above:

• Old basis: 13.8% of £24,159 = £3,334
• New basis: 15% of £28,259 = £4,239

That is £905 more per operative per year, an extra 2.7% on the employer’s total wage cost, arriving overnight. Any all-in labour rate built before April 2025 and carried forward on a wage index misses it completely, because the wage did not change. The tax on it did.

Travel Is Paid Separately, and It Is Not Small

Working Rule 5 pays a daily travel allowance and a fare allowance by distance band, on top of the hourly rate.⁶ Against a craft operative’s daily basic of £127.92:

Two identical hourly rates where one job is in town and one is 40 miles out are not identical costs, and none of the difference appears in the rate. This is the arithmetic behind a trade quoting higher for a job an hour away, and it is why rural and awkward-access work carries a premium that has nothing to do with the work itself.

A CIS Deduction Is Not a Price Reduction

Under the Construction Industry Scheme a contractor deducts 20% from a registered subcontractor’s payment, or 30% from an unregistered one, and pays it to HMRC as an advance against the subcontractor’s own tax bill. The amount paid is therefore not the price agreed.

The detail that catches people reading the paperwork is what the deduction lands on. It comes off the labour element only: HMRC’s own list says deductions are not taken from VAT, plant hired for the job, or materials the subcontractor paid for directly.⁷ So on a £10,000 invoice carrying £4,000 of directly purchased materials, the deduction is 20% of £6,000, which is £1,200, and the payment is £8,800.

Take the net payment as the value of the work and you understate it by 12% on that invoice, and by a different percentage on every other invoice, because the ratio moves with the material content. For a homeowner this mostly matters in one situation: if you are shown a subcontractor’s payment record as evidence of what something cost, it is not what it cost.

What This Means When You Are Reading a Quotation

1. A charge-out rate is not a wage, and the gap is mostly not profit. Roughly £1.29 of employment cost for every £1 of headline wage, before overheads.
2. Ask what a day is. A £250 day is £31.25 an hour at eight hours and £25.00 at ten, a 25% spread on the same quotation. Our note on UK tradesperson day rates sets out the market figures; the hours behind them are worth asking about directly.
3. Ask what grade is on site. A gang priced at craft rate and a gang of general operatives are 24.4% apart on wage alone, and the difference shows up in the work long before it shows up in the invoice.
4. Expect distance to be priced. It is priced in the national agreement, so a trade pricing it into a quotation is following the norm, not inventing a surcharge.
5. Do not read net payments as prices. CIS deductions, like VAT reverse charge invoices, make paperwork figures systematically lower than the agreed price.

None of this says a given quotation is fair. It says the test of fairness is not the distance between the hourly charge and a wage, because that distance is mostly structural. The useful tests are the ones in our notes on comparing building quotes and on day rate against fixed price.