There are three honest ways to charge for work, and the difference between them is not the money, it is who carries the risk when the job takes longer than anyone thought. A day rate puts that risk on the customer. A fixed price puts it on you. Time and materials splits it, badly, unless you cap it. Pick the one that matches how well you know the job, then say in writing which one you picked. Almost every argument about a final bill traces back to two people who never agreed on that.
The three ways, and what each one actually is
Hourly or day rate. You charge for your time, usually with materials billed separately. The customer pays for the hours the job takes, however many that turns out to be. Common when you are helping a general contractor for a week, when the scope is genuinely unknown, or when the work is small and scattered.
Fixed price, also called lump sum or a hard bid. You look at the job, work out what it will cost you, and give one number for the whole thing. That number does not move unless the scope moves. This is what a homeowner expects, and it is the default for residential work of any size.
Time and materials, often shortened to T and M and sometimes called cost plus. You bill your actual labor hours at an agreed rate, plus your actual material cost with an agreed markup on top. It looks like a day rate with the materials made explicit, and the difference matters: on a day rate the customer usually knows roughly what a day costs them, while on T and M the total is genuinely open until the work stops.
There is a fourth you will meet on production work: unit pricing, where you are paid per square foot of drywall hung, per fixture set, per square of roof laid, per linear foot of trim. It is a fixed price applied to a measured quantity, so it behaves like a fixed price for risk, and it lives or dies on whether the quantity in the contract matches the quantity on the ground.
Who carries the risk is the whole question
Every one of these is a fair way to trade. What separates them is what happens on the day you open a wall and find something nobody priced.
- On a day rate or T and M, the extra time is billed. The customer pays for the surprise. Your risk is not the surprise, it is that the customer watches the clock, compares you to somebody who quoted a number, and decides you are slow.
- On a fixed price, the extra time comes out of your margin. You carry the surprise. Your reward is that when you work fast, buy well, or run the job tightly, you keep the gain.
That is the trade, and it is the reason the answer changes job to job rather than being a policy you set once. The more certain you are about the work, the more a fixed price pays you. The less certain you are, the more it costs you.
Whichever you use, the number underneath is the same. Your price has to cover your labor, the payroll burden on that labor, your materials, and a share of your overhead, and then carry profit as its own line on top. How to price your work so you actually make money builds that stack one step at a time, and it is worth reading before this one if you have not. The short version is that an employee wage of $33 an hour has to be billed at roughly $94 to leave the same person in the same place once the employer share of payroll tax, the days you cannot bill, the overhead and a 15 percent profit line are all back on your side of the table. That is 2.8 times, and not one step of it is greed.
Where each one belongs
Quote a fixed price when the scope is clear, you have done work like it before, and you can walk it and see what you are getting into. A bathroom remodel to a known spec, a panel change, a roof replacement on a straightforward layout, a repaint. Homeowners want certainty, and certainty is worth money to them, so a fixed price is usually where your margin is highest as well as where the customer is most comfortable.
Charge a day rate when you are supplying labor to somebody else who is running the job, when the work is investigative, or when the job is small and bitty enough that pricing it properly would cost more than the job is worth. Fault finding, chasing a leak, punch list work, strip out on an old building, a week helping a general contractor push a schedule.
Use time and materials when the work genuinely cannot be scoped up front and both sides know it. Fire and water restoration, an old house of unknown construction, a remodel where the customer is still choosing. It is the right answer when the alternative is a fixed price built on a guess, because a guess is a loss you have already agreed to.
Use unit pricing when the work is repetitive and measurable and you know your real output. The rate has to carry the same four costs plus profit as any other price, and the trap is agreeing a rate on a quantity somebody else measured.
The one that catches people: T and M with no ceiling
Open-ended time and materials is the format most likely to end in a fight, and the fight is never about the hourly rate. It is about the total. The customer had a number in their head from the first conversation, the invoice is bigger than that number, and now they are looking for a reason not to pay it.
Three things fix it, and they cost you nothing:
- Put a not-to-exceed number on it. You bill actual time and materials up to a ceiling, and you do not pass the ceiling without written approval. The customer gets a worst case they can plan around, and you get paid for the hours you actually work.
- Bill often and small. Weekly or biweekly, itemized, with the hours and the receipts. A customer who has seen four invoices is not surprised by the fifth. A customer who sees one at the end is.
- State the material markup as a number in the agreement. Marking materials up 15 to 25 percent is standard and fair, because you carry the cost, the waste, the running around and the warranty. It stops being fair when the customer finds out about it from the invoice.
The same discipline is what makes the money arrive on time on any job, and The invoice that gets paid: billing and collections before it is a fight has the rest of it.
What the customer actually hears
Homeowners hear a day rate as a blank check, whatever you meant by it. Contractors, developers and property managers hear it as normal, because they run jobs and expect scope to move. That is the real split, and it is about who the customer is rather than how big the job is.
So on residential work, if you want to work on time, build the fixed price out of your day rate behind the scenes and present a single number. The customer does not need to see your hourly to trust it. What they need is a scope that says exactly what they are getting, an exclusions list that says what they are not, and a payment schedule. How to write an estimate that wins the job and protects you is that document.
Say which one it is, in writing, before you start
The mistake is not choosing wrong. It is never saying out loud which one you chose. A one-line sentence in the agreement ends most of these disputes before they exist:
- Fixed price: "The price is $X for the scope described. Work outside that scope is priced separately by signed change order."
- Day rate: "Labor is billed at $X per day of 8 hours, plus materials at cost plus X percent. Estimated at N days; this is an estimate of duration, not a fixed price."
- T and M: "Labor billed at $X per hour, materials at cost plus X percent, invoiced every two weeks, not to exceed $Y without written approval."
Then hold the line the same way on every change. A verbal yes to extra work is a gamble you will often lose, and Change orders: how to actually get paid for extra work explains why, and what a change order has to contain. The Change Order Form is the one-pager, and there is a Change Order Form builder if you would rather generate it. Your scope is the baseline all of that depends on, which is why Scope of work and exclusions: write it tight so change orders stick is really a pricing guide wearing a contracts hat.
One more warning that is worth more than it looks. Many states legally require a written contract on residential work above a small dollar amount, and doing the job without one can strip your right to be paid even when the work was good. The contract that protects you has the state trap.
A day rate on somebody else's site is where misclassification starts
If you are a one-person business on a day rate, working the same hours every week for the same general contractor, using their tools and taking their instructions, you have stopped looking like a business and started looking like an employee. The label on the invoice is not what decides it. The IRS and the Department of Labor look at behavioral control, financial control and the relationship itself, and construction is one of the most heavily enforced areas for this.
That matters for pricing because a genuine sub prices the job and carries the risk, and an employee does not. Being paid by the job, with your own tools, your own insurance and a real chance of profit or loss, is one of the things that shows you are in business on your own account. Being paid for hours, indefinitely, on one customer's schedule, is not.
Run your own situation through 1099 or W-2? Worker Status Checker, and read 1099 vs W-2: which are you really? if the answer surprises you. If it turns out you are really an employee, the overtime rules in Do I have to pay my crew overtime? apply to you rather than to somebody you hired.
Where to go next in this section
- How to price your work so you actually make money, the cost stack every one of these three sits on top of.
- How to write an estimate that wins the job and protects you, the document that says which model you picked.
- When to raise your prices, and how to tell your customers, because whichever model you use, the number has to move over time.
- How to explain your price when they say "that's a lot", for the conversation this guide leads to.
- Materials: who supplies, who pays, and getting it in writing, which is half of what T and M is actually about.
- What Should I Actually Charge? backs a day rate out of your overhead, your taxes and the days you cannot bill.
Common questions
Is a day rate or a fixed price better for a contractor?
Neither is better in general, because they carry the risk in opposite directions. A fixed price pays you more when you know the job well: you keep the gain when you work fast or buy well, and the customer pays for certainty. A day rate protects you when the scope is genuinely unclear, because the extra time is billed rather than absorbed. The rule that works is to match the model to how well you know the work. Quote fixed on jobs you have done before and can walk beforehand, and charge for time on investigative, open-ended or stop-start work. Whichever you pick, write down which one it is before you start.
What is time and materials in construction?
Time and materials means you bill your actual labor hours at an agreed rate plus your actual material cost with an agreed markup on top, instead of one fixed number for the job. It is the right format when the scope genuinely cannot be pinned down in advance, such as restoration work or an old building of unknown construction, because the alternative is a fixed price built on a guess. The danger is that the total is open until the work stops. Cap it with a not-to-exceed figure that cannot be passed without written approval, invoice every week or two with the hours itemized, and state the material markup as a number in the agreement rather than letting the customer discover it on the bill.
How much should I mark up materials?
Marking materials up 15 to 25 percent is standard and fair across the trades, because you carry the cost before the customer pays, you carry the waste, you do the running around, and you carry the warranty on what you supplied. Passing materials through at cost is a gift you cannot afford to give, and it also teaches the customer that your labor is the only thing they are paying for. The markup only causes trouble when it is a surprise, so put the percentage in the agreement on any time and materials or cost-plus job. On a fixed price the markup is already inside your number and does not need itemizing.
Should I tell a homeowner my hourly rate?
Usually not, and not because it is a secret. A homeowner hears an hourly or daily figure as an open commitment with no ceiling, and they will multiply it by a number they invented. Build the fixed price out of your day rate behind the scenes and present one number for the job, with a scope that says exactly what is included, an exclusions list, and a payment schedule. Contractors, developers and property managers are the opposite: they run jobs, they expect scope to move, and a day rate is a normal thing to quote them. The right answer depends on who the customer is far more than on how big the job is.
Can I switch from a fixed price to time and materials mid-job?
Only by agreement, in writing, before the extra work starts. Once you have quoted a fixed price you are held to it for the scope you described, and announcing partway through that you are now billing hourly is how a job ends in a dispute you lose. The proper route is a signed change order that prices the new work, whether that is a fixed addition or an agreed hourly rate with a ceiling. If the job has turned out to be so far from what you priced that a change order will not carry it, stop, document what you found with photos, and have the conversation before you do the work rather than after.
The honest bit
- There are no dollar rates in this guide, and that is deliberate. There is no national hourly or daily rate for any trade in the US, and copying one off a forum is how contractors go broke. Build the number from your own costs.
- The $33 to $94 stack is this site's worked example with its assumptions written down (187 billable days, a stated overhead, 15 percent profit). It shows the method. It is not a rate for your trade or your area.
- The 15 to 25 percent materials markup is what the trades commonly charge, not a rule anyone enforces. Yours is whatever your agreement says.
- Whether a written contract is legally required, and what it must contain, is set by your state and by the type of work. Check your own state before relying on the general position here.
- This is general guidance, not legal, tax or financial advice.
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