Demystifying Bill Rate vs. Pay Rate: How to Calculate Your True Costs as a Staffing Agency

As a staffing agency, setting the right bill rate is crucial for profitability. The bill rate is what you charge your clients for your services. The pay rate is what you pay the worker. The difference is your gross margin, which is the amount of money you have left over after paying your bills and making a profit.

But it’s not as easy as picking a random markup percentage to figure out your real bill rate. You need to think about all the legal costs that come with hiring and paying temporary workers. This is where bill rate vs. pay rate calculators come in handy.

In this comprehensive guide, we’ll break down exactly what goes into your bill rate calculation and show you how to leverage online calculators to determine your optimal bill rate for profitability.

Bill Rate vs. Pay Rate: What’s the Difference?

First let’s clearly define these two key rates

Bill rate – The hourly or project rate you charge clients for services. This must cover pay rate, statutory expenses, overhead costs, and profit margin.

Pay rate: The hourly wage or salary that is given directly to the temporary worker.

The pay rate will be the biggest cost component of your bill rate. But bill rate and pay rate are not synonymous. There are additional costs that must be accounted for in your bill rate:

  • Statutory expenses – Payroll taxes, workers’ comp insurance, etc.
  • Overhead – Rent, office expenses, equipment, etc.
  • Profit margin – What’s left over for net profit

A general rule of thumb is that around 75-80% of your bill rate goes towards pay rate and statutory expenses. The rest covers overhead and profit margin.

But how do you calculate what to actually charge? This is where using a bill rate calculator comes in handy.

How to Calculate Your Bill Rate

Figuring out your true bill rate requires looking at four key components:

1. Pay Rate

This is the hourly wage or salary you pay workers. Pay rates vary significantly based on the position and market rates.

For example, an administrative assistant may have a pay rate of $20/hour. A specialized IT contractor may have a pay rate of $75/hour or more.

2. Statutory Expenses

These are payroll taxes and insurances required by law:

  • Federal & state unemployment taxes
  • Social Security/Medicare taxes
  • Workers’ compensation insurance

Total statutory expenses range from 10-15% of pay rate on average.

3. Overhead Costs

This covers operating expenses like:

  • Rent & office expenses
  • Equipment, software, supplies
  • Recruiting costs
  • Marketing expenses
  • Admin salaries

Overhead as a percentage of revenue ranges widely but plan around 15-30% of bill rate.

4. Profit Margin

The leftover income after covering costs is your profit margin. A 10-30% margin is typical in staffing.

Add up all these factors and you get your true bill rate needed to turn a profit.

But manually calculating this takes time. That’s where using a bill rate calculator becomes extremely helpful for quickly estimating your rates.

How Bill Rate Calculators Work

Bill rate calculators allow you to input a pay rate and other variables, and will quickly calculate your needed bill rate for profitability.

Most calculators will ask for inputs like:

  • Pay rate
  • Statutory rates for unemployment, workers comp, etc.
  • Overhead %
  • Target profit margin %

Then the calculator will add up these components and determine the bill rate you need to charge clients.

It takes the guesswork out of setting your prices and helps you scientifically derive your optimal rate. Most calculators let you tweak the variables to model different scenarios too.

Here is an example using the Omni Calculator bill rate calculator:

Let’s say we input:

  • Pay Rate: $20/hour
  • Statutory rates: 10%
  • Overhead %: 25%
  • Profit margin: 15%

The calculator determines the needed bill rate is $28.57 per hour.

It’s that simple! Now you have a defendable, profitable bill rate to provide clients rather than guessing.

Bill Rate Calculator Tips

When using an online bill rate calculator, keep these tips in mind:

  • Use real statutory rates – Don’t guess on taxes and workers comp. Lookup the real rates you will pay.
  • Factor in ALL overhead – Include every operating expense to avoid undercharging.
  • Model multiple scenarios – See how tweaking variables like profit margin impacts your rate.
  • Re-calculate regularly – Update as statutory rates and expenses change.
  • Don’t go below true costs – The calculator gives you your floor rate – don’t undercut it!

Taking the time to accurately calculate your bill rate using these tools will ensure you are pricing your services profitably.

Setting Bill Rates for Different Position Types

When setting your bill rates, you also need to consider the type of positions you are staffing for:

Low-Skilled Positions

These are basic hourly roles like warehouse workers, general labor, administrative assistants, etc.

  • Pay rates usually minimum wage to $20/hour
  • Less overhead required for recruiting/onboarding
  • More competition so margins tend to be thinner
  • Bill rates typically $25-45/hour

Skilled Positions

These require specific abilities like IT contractors, paralegals, engineers.

  • Pay rates range widely $30-$100+/hour
  • More overhead for specialized recruiting
  • Less competition so higher margins
  • Bill rates usually $50-150+/hour

Executive/Leadership Roles

These are upper management and C-level placements.

  • Pay rates exceed $100K+ in salary
  • High overhead costs for executive recruiters
  • Very low competition
  • Bill rates range from 15-30% of salary

Adjust your bill rate calculation appropriately for the types of roles you staff for.

Justifying Your Bill Rate to Clients

Sometimes clients balk at bill rates that seem high compared to pay rates. Be ready to clearly explain your pricing:

  • Outline the detailed statutory costs you must pay
  • Note overhead expenses required to run your operation
  • Explain the value you provide beyond just the pay rate
  • Use rate calculators to demonstrate how you arrived at the rate

Being transparent about your costs and profit needs often helps clients understand your prices.

Bill Rate Vs Pay Rate Calculator

Recruitment Agency Bill Rate, Markup, Fees & More

So you’ve started a staffing firm or are thinking about starting one. Now, what should you be charging customers to keep competitive and still make a profit? Use the profitability calculator to determine staffing and recruitment Agency Bill Rate, Markup, Fees & More.

The Components of Pricing

Bill rate is the rate a company pays to a staffing agency for the services of a temporary worker. There are several components of pricing to take into account when figuring out your bill rate.

  • Gross Margin – The amount of money a staffing firm gets to keep after paying the temporary workers’ payroll, benefits, payroll, and other statutory expenses. Gross profit margin dollars are used to pay internal overhead costs and the owner’s profit.
  • Burden Rate or Statutory Expenses – Taxes, insurance, and other charges required by law. For staffing firms, it includes:
    • Federal Unemployment Tax (FUTA) – Unemployment taxes paid to the Federal government. The FUTA rate is 6.0% with a wage base of $7000, and employers can take a credit of up to 5.4% of taxable income if they pay state unemployment taxes. If you qualify for the highest credit, then the minimum FUTA rate is .6%.
    • Social Security and Medicare Tax Rate (FICA) – A single flat fee/ rate to all employers of 6.2% for social security and 1.45% for Medicare tax. This is capped at a salary of $137,700 for Social Security for each employee in 2020. There is no cap on Medicare tax.
    • State Unemployment Insurance Tax (SUTA) – Rates and taxable wage limits vary significantly from state to state. And Worker’s Compensation Insurance.
    • Worker’s Compensation Insurance – An insurance policy that covers work-related injury and illness. Workers comp insurance rates vary by skill type, vendor, and state.
  • Markup – A percentage charged by the staffing firm on top of the pay rate. Markups can include various factors; statutory expenses, overhead and operating costs, and profit. Operating expenses can cover rent, equipment, recruiting fees, commissions, and more.
  • Pay Rate – The pay rate is the direct pay given to the worker and makes up the majority of the bill rate.
  • Profit Margin – A measure of profitability is calculated by taking net profit (revenue-cost) and dividing it by revenue.

Learn more about our staffing and recruitment payroll tax services and solutions.

How Recruiters Can Calculate Staffing Bill Rates

What is the difference between pay rate and Bill rate?

Pay rate is the amount of money workers are paid per hour, week, etc. Bill rate is the amount a company or professional charges per hour of work. Bill rate and pay rate are easily confused, but they both factor into the decision of how much you should charge for your services as an independent contractor, consultant, freelancer, etc.

How much does a bill cost per hour?

Use the average multiplier of 1.56 to find your bill rate: $45.00 (Hourly Pay Rate) X 1.56 (Multiplier) = $70.20 (Bill Rate) You would bill your client $70.20 per hour. What does the mark-up cover?

What is a bill rate & how does it work?

Companies and self-employed individuals use bill rates to charge customers for their services. It includes the costs a company or a professional needs to cover in order to achieve the target income. Taxes, markups, and fees are then subtracted from the bill rate, to get the pay rate.

What is a billing rate?

A billing rate is defined as the rate a company will bill a customer per hour in order to meet certain profit goals given their understanding of their costs and capacity utilization. How to calculate the bill rate? First, determine the annual base salary of an employee. For this example, we will have an employee making $90,000.00 per year.

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