How the labor rate works on an invoice
Each repair line has billed hours, either the actual time worked or a set time from a labor guide or the shop's own job times. The billed hours times the labor rate gives the labor charge for that line. For example only: 2.5 billed hours at an illustrative rate of 150 dollars per hour is a labor charge of 375 dollars. See flat rate and book time.
Different rates for different work
Many shops publish more than one rate, such as:
- A standard shop rate for work in the bays.
- A mobile or field rate for work at the customer's location.
- An after-hours rate for nights, weekends and holidays.
- A diagnostic rate for troubleshooting time.
- Contract rates agreed with fleet customers.
Each should be written on the rate sheet and in fleet agreements so there are no surprises.
What goes into setting it
A labor rate has to cover technician pay and benefits, the time technicians are paid but not billing, rent or truck costs, tools, insurance, software, office staff and profit. The Bureau of Labor Statistics publishes wage data for diesel service technicians that shops can use as one input for pay costs. See how to calculate shop labor rate and average diesel shop labor rate.
Labor rate versus effective labor rate
The posted rate is not always what the shop earns. Discounts, warranty work, unbilled diagnostic time and write-offs pull the average down. The effective labor rate is total labor revenue divided by hours billed, and comparing the two shows how much of the posted rate the shop actually keeps. See how to calculate effective labor rate.
Disclosure
Rules differ by state. For example, California's Write It Right guidance says the labor rate itself is not required on the estimate or invoice, while Smog Check stations must post an hourly labor rate. Check your own state's rules.
Related: technician efficiency, service call fee.
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