How to Calculate Your Overhead Rate as a NZ Tradie (2026 Guide)

Most NZ tradies know roughly what they want to charge per hour. Fewer know whether that rate actually covers their overhead — and that gap is where businesses quietly bleed out.

Overhead is every cost you carry whether you're on the tools or not: your van, your insurance, your phone, your accountant. If those costs aren't baked into your quotes, you're funding them out of your margin. This guide walks you through how to calculate your overhead rate correctly, and how to recover it in every job you price.

What Counts as Overhead?

Overhead is the cost of running your business — separate from the direct costs of any specific job (materials, subcontractors, and the labour hours you bill).

Common overhead items for NZ tradies include:

• Vehicle costs — registration, WoF, loan repayments or lease payments, fuel on non-billable driving
• Insurance — public liability, tools and equipment, income protection, vehicle. A sole trader with a van and $50k of tools might pay $3,500–$6,000/year depending on trade
• ACC levies — your Work levy is set by your trade classification. For the 2025/26 year, IRD collects ACC as part of your income tax return; rates vary from around $0.67 to $3.17 per $100 of liable earnings depending on risk classification
• Phone and internet — most tradies run $100–$180/month on plans
• Software subscriptions — job management apps, accounting software (Xero runs around $50–$80/month for a sole trader), estimating tools
• Tools maintenance and replacement — consumable blades, drill bits, PPE, annual calibration on test equipment
• Marketing — website hosting, Google ads, local directory listings
• Accounting and legal fees — a good tradie accountant typically costs $1,500–$3,500/year
• Work clothing and PPE — boots, hi-vis, safety glasses
• Training and licences — LBP continuing education, first aid renewals, trade association memberships
• Home office costs — if you run admin from home, a proportion of your home internet, power, and space may be claimable (IRD has specific rules here — see ird.govt.nz for the workspace-in-home deduction)

Step 1: Add Up Your Annual Overhead

Pull out your last 12 months of bank and credit card statements and categorise every business cost that isn't a direct job cost. If you're just starting out, estimate conservatively.

Example — sole trader sparky, one van, no employees:

That's over $21,000 in costs that have nothing to do with any specific job — but must be paid for by the jobs you do.

Step 2: Calculate Your Billable Hours

You can't bill for every hour you're awake. A realistic NZ tradie year looks something like this:

• Total working weeks: 48 (after 4 weeks annual leave)
• Working days per week: 5
• Hours per day on-site or billable: 7 (admin, travel, quoting, and materials runs eat the rest)
• Estimated billable hours: 48 × 5 × 7 = 1,680 hours/year

This is a common range — 1,500 to 1,800 billable hours for a sole trader. If you're more efficient with scheduling or have an admin system, you might push higher; if you spend a lot of time quoting for work you don't win, you'll be lower.

Step 3: Calculate Your Overhead Rate

Divide your total annual overhead by your billable hours to get the overhead cost per hour:

$21,708 ÷ 1,680 hours = $12.92/hour

That means every hour you bill, $12.92 needs to go toward overhead before you've earned anything.

To express this as a percentage of your labour cost — which is useful when you're costing jobs that are mostly materials — divide overhead cost per hour by your labour cost per hour.

If you pay yourself $45/hour as a base rate:

$12.92 ÷ $45 = 28.7% overhead rate

This means your overhead adds roughly 29% to your base labour cost. When quoting, you need to recover at least $45 + $12.92 = $57.92/hour just to break even on labour before profit.

Use our hourly rate calculator to factor in overhead alongside your target profit margin — it handles this calculation automatically.

Recovering Overhead in Your Quotes

There are two practical ways to recover overhead in your pricing:

Method 1 — Bake it into your hourly rate. Add your overhead cost per hour to your base rate, then add your profit margin on top. Simple, consistent, and hard to forget.

Method 2 — Apply it as a percentage to total job cost. Useful on larger jobs where labour is a smaller proportion. Apply your overhead rate (e.g. 29%) to your direct costs before adding margin. This method works well alongside a job cost calculator where you're tracking materials, subcontractors, and labour separately.

Most experienced tradies use Method 1 for small-to-mid jobs and Method 2 for larger builds or fit-outs.

What's a Normal Overhead Rate for NZ Tradies?

Overhead as a percentage of direct costs typically falls in these ranges:

• Sole trader, no employees: 20–35%
• Small business (2–5 staff): 35–55%
• Larger contracting business: 50–80%

The bigger your team, the more non-billable time and infrastructure you carry (HR, safety admin, depot costs, management time), so overhead rates climb steeply with headcount. This is why growing your business without reviewing your pricing is a fast way to lose money.

If your overhead rate is creeping up but your rates aren't, use the breakeven calculator to see how many billable hours you need to at least cover costs each month.

Tips for Keeping Overhead Under Control

Review costs annually. Insurance, software, and ACC levies all change. A $200 subscription you added and forgot about adds up.

Track non-billable time. If you're spending 10 hours a week on quoting, admin, and travel, that's 500 hours a year not earning. Either price it in or find ways to reduce it. Apps like Fastcrew help reduce admin time by combining job management, timesheets, and invoicing in one place.

Separate personal and business costs. Many sole traders blur the line on phone, vehicle, and home office costs. IRD has specific rules on what portion is claimable — get this right so you're neither overclaiming (audit risk) nor leaving legitimate deductions on the table.

Don't let overhead grow silently. Every new subscription, upgraded van, or extra insurance policy raises your breakeven point. If you can't immediately see how it gets covered by your billing rate, reconsider or reprice.

Download our free NZ tradie templates at tradietools.nz/templates/ — including an overhead cost tracker spreadsheet you can update annually.

NZ Tradie Tools provides free calculators, templates and guides for New Zealand tradies. Visit tradietools.nz.