You may want to know the answer to this question because you are considering raising your rates and need help in justifying higher rates. Or, you are just curious. Whatever the reason, here’s the simplest way to figure this out:
First, take the number from last year’s IRS Schedule C line 31. This represents your profit from last year. It takes into account all your business income minus all your business expenses. It’s your profit.
Second, take the number from last year’s IRS Form 8829 Expenses for Business Use of Your Home, line 4. This represents how many hours you worked last year.
Third, divide your profit (line 31 of Schedule C) by the number of hours you worked (line 4 of Form 8829). The result is the amount you earned per hour for your work last year.
For example, if your profit was $25,000 and you worked 3,000 hours, you earned $8.33 per hour ($25,000 divided by 3,000).
Many providers underestimate how many hours they work by not carefully counting all the hours they spent on business activities in their home when children were not present. If this is the case for you, your hourly wage will be lower if you include all of these hours.
Some providers under report their business expenses by not claiming all the expenses they are entitled to. Here’s a list of common business deductions. My book Family Child Care Record Keeping Guide lists over 1,000 allowable deductions.
How can you use this information?
If you want to raise your hourly wage, multiply the hourly wage you want by line 4 on Form 8829 to see what your profit must be. So, in the above example, if you want to earn $10 an hour, multiply $10 by 3,000 hours = $30,000 profit. To reach this goal you would need to earn an additional $5,000 per year. If you care for four children, you could raise your rates by $1,250 per year or $24 per week. Or, you could cut your business expenses by $5,000 per year.
Sometimes parents look at how much they pay you, see how many other children are in your care and assume you are earning a lot more money than you really are. The next time parents question your rates, tell them how much you make per hour.
Tom Copeland – www.tomcopelandblog.com
Image credit: https://www.flickr.com/photos/beckytekkie/
For more information, see my book Family Child Care Record Keeping Guide.