What is Bill Rate vs Pay Rate?
Definition: Bill rate is the hourly or daily amount a client pays a staffing agency for a contractor's services, while pay rate is the amount the contractor actually receives. The difference (spread or markup) covers employer costs and agency margin.
Also known as: Billing Rate, Client Rate, Contractor Rate, Pay/Bill Spread
Quick Summary
TL;DRBill rate is what the client pays the staffing agency for a contractor's time. Pay rate is what the contractor actually receives. The difference covers the agency's costs (employer taxes, insurance, benefits) and profit margin. Understanding this spread is essential for pricing and negotiation.
Key Facts
Bill Rate
What client pays agency
Client invoice
Pay Rate
What worker receives
Contractor paycheck
Typical Markup
25-75% over pay rate
Industry benchmarks
Covers
Taxes, insurance, overhead
Cost structure
Why Bill Rate vs Pay Rate Understanding Matters
Contractors often see only their pay rate without understanding the full economics. This leads to frustration when they learn the bill rate. Recruiters need to explain the spread confidently, showing what the markup actually covers. Clients want competitive bill rates while agencies need sustainable margins. Getting the math wrong hurts profitability or loses placements.
Common Pain Points
- 1Contractors feeling underpaid when they learn bill rates
- 2Difficulty explaining the markup to candidates
- 3Pressure from clients to reduce bill rates
- 4Calculating correct markup for profitability
Understanding Bill Rate Components
The bill rate covers more than just contractor pay.
- 1
Start with Pay Rate
The base amount paid to the contractor. This is their actual hourly/salary compensation before the agency adds costs.
- 2
Add Employer Burden
FICA (7.65%), FUTA, SUTA, workers' comp (1-10%+ depending on role), and liability insurance. This adds 12-20% minimum.
- 3
Add Benefits Cost
If providing health insurance, PTO, 401k—these add significant cost. Healthcare alone can be $500-1500/month per person.
- 4
Add Margin
Agency profit margin covers sales, recruiting, operations, and business profit. Typical 10-20% on top of all costs.
Result
A $50/hour pay rate often requires a $70-85/hour bill rate for the agency to be profitable.
Bill Rate Economics Deep Dive
The Real Cost Breakdown
For a W2 contractor with $50/hour pay rate: employer FICA adds $3.83, workers' comp adds $1.50-5.00 (varies by role), benefits burden adds $3-8, operational costs add $2-5, and profit margin adds $5-10. The resulting bill rate ranges from $65-80+ per hour. Understanding this math helps justify rates to both clients and contractors.
Markup vs Margin
Markup and margin are different calculations that often cause confusion. Markup is calculated on cost (pay rate): (Bill - Pay) / Pay. Margin is calculated on bill rate: (Bill - Pay) / Bill. A 50% markup equals a 33% margin. A 50% margin requires a 100% markup. Always clarify which metric you're discussing.
Negotiation Strategies
When clients push back on bill rates, show the component breakdown. Most clients understand employer costs once explained. Protect margin by negotiating pay rate with contractors or finding operational efficiencies. Never reduce margin below your break-even point—unprofitable placements aren't worth making.
Common Misconceptions
- The entire spread is agency profit
- Higher bill rates mean higher contractor pay
- Markup percentages are standard across industries
- Bill rates are always negotiable downward
Bill Rate Components
| Component | Percentage | Example at $50 Pay Rate |
|---|---|---|
| Base Pay Rate | 100% | $50.00/hour |
| FICA/Medicare (7.65%) | +7.65% | +$3.83/hour |
| Workers Comp (varies) | +3-10% | +$1.50-5.00/hour |
| Benefits (if applicable) | +6-15% | +$3-7.50/hour |
| Agency Margin | +10-20% | +$5-10/hour |
| Typical Bill Rate | 125-150% | $62.50-75/hour |
What makes up the spread
Related Terms
Frequently Asked Questions
Related Resources
Present Candidates Professionally
Quality formatting that supports your bill rates