Bill Rate

What goes into a bill rate

A bill rate has three layers.

1. Pay rate. The worker's hourly wage. Set by the market, the client's internal pay bands and minimum wage laws.
2. Burden. The legally required and insurance costs of employing the worker: the employer share of Social Security and Medicare (7.65% under FICA), federal unemployment tax, state unemployment insurance, workers' compensation premiums, and any benefits the agency provides or must provide, such as paid sick leave in states that require it. See burden rate for the breakdown.
3. Overhead and profit. Recruiters, account managers, background checks, payroll and invoicing, office costs, bad debt and margin.

Agencies usually express the second and third layers together as a markup on pay. The client sees a bill rate and, in managed programs, often the pay rate too.

Bill rate vs pay rate

Pay rate is what the worker earns. Bill rate is what the client pays the agency. The difference is the spread, and it is not all profit.

This gap confuses both workers and hiring managers. A temp earning $18 an hour who learns the client pays $26 may feel underpaid. A plant manager comparing a $26 bill rate with an $18 employee wage may conclude temps are 44% more expensive. Both views skip the cost of employing someone. A direct employee at $18 also carries payroll taxes, workers' comp and benefits, often adding 25% to 40% to the wage. The honest comparison is the bill rate against the fully loaded cost of a direct hire, plus the cost of recruiting and turnover the agency absorbs.

Typical bill rate ranges and markups

Bill rates move with the pay rate, so it is more useful to talk about markups. Typical ranges in the US:

• Light industrial and warehouse: often 30% to 55% markup
• Clerical and administrative: often 35% to 60%
• Contact center and customer service: often 35% to 55%
• IT and professional contract: often 40% to 80%, sometimes expressed as a margin rather than a markup
• Healthcare and travel nursing: wide ranges, often higher, and heavily affected by stipends and demand spikes

Markups are higher in states with high unemployment insurance and workers' comp costs, for roles with hazardous work classifications, and for small orders. Large volume programs with a managed service provider usually negotiate rate cards at the lower end.

Overtime, holiday and other bill rates

Contracts list several bill rates, not one:

• Regular bill rate for straight-time hours
• Overtime bill rate, usually the regular bill rate × 1.5, because the agency must pay overtime under the FLSA for non-exempt workers over 40 hours a week, and several states have daily overtime rules
• Double time where state law or the contract requires it
• Holiday and shift differential rates when the client pays premiums to its own employees for those shifts

Watch how overtime is billed. Some agencies multiply the full bill rate by 1.5, which also multiplies their markup. Others bill overtime pay at 1.5 times pay plus the same dollar spread. On a large peak program, the difference can be tens of thousands of dollars.

How to calculate a bill rate from the agency side

Agency account managers usually price from the cost up:

1. Start with the pay rate the client wants or the market requires.
2. Add burden for the state and workers' comp class. A $20 pay rate with 22% burden costs $24.40 per hour to employ.
3. Add a target gross profit per hour or percentage. For a 25% gross margin, divide cost by 0.75: $24.40 ÷ 0.75 = $32.53.
4. Convert to a markup if the client expects one: $32.53 ÷ $20 = 1.63, or a 63% markup.

Check the result against what the client's program will accept. If the rate card allows only a 45% markup, either the pay rate, the margin or the deal has to change.

Common mistakes

• Quoting one markup for every state. Workers' comp and unemployment insurance vary widely, so the same markup can be profitable in one state and a loss in another.
• Forgetting mandated benefits. Paid sick leave laws and local ordinances add cost that must be in the rate.
• Not updating rates when pay changes. If a client raises the pay rate mid-assignment, the bill rate must change with it.
• Comparing bill rates to base wages. Clients should compare against fully loaded employee cost.
• Ignoring conversion terms. A low bill rate with a high conversion fee may cost more on a temp-to-hire order.