Pay Rate vs. Bill Rate
Most companies attempt to manage the bill rates for their contingent workers since the bill rate is the amount a company pays to a staffing agency for the services of a contingent worker. In order to effectively manage the bill rate, companies must understand the various components that make up the bill rate.
To understand bill rates we must begin with a definition of pay rate. The pay rate rate is the amount of the bill rate that is being paid to the contingent worker by the staffing agency. All too often, only the staffing agency knows this rate and is very reluctant to share it with the buyer. Since the pay rate is the largest component of the bill rate, it is the critical component since the markups used by staffing agencies to determine the bill rate are applied to the pay rate. The second component of the bill rate is the markup which is generally a percentage of the pay rate through which the staffing agency recovers its costs and profits. Depending on the types of contingent workers used, level of competition, buyer’s knowledge, volumes of business, etc. this markup percentage will range significantly. We have experienced markups from the low 20% range upwards to 60% or more.
The table below allows you to see how a Bill Rate develops from a Pay Rate.
- $30.00/Hour
- Pay Rate
- This is the hourly salary paid to the contingent worker.
- $12.00/Hour
- Markup (40%)
- This generally includes the agency’s overhead and general and administrative expenses. Other important components of the markup are the mandatory employer taxes (FICA, FUTA, State Unemployment, etc.) that must be remitted to the taxing authorities by the agencies. The markup will also include a factor for profit.
- $42.00/Hour
- Bill Rate
- This is what the user pays.
A common misconception about staffing agencies is that they have the same pricing for all clients. This is not true. Typically an agency will develop a bill rate structure based on a client’s anticipated volume, level of knowledge relative to the applicable bill rates, level of competition, etc.
Another misconception is that an agency is always paying the same amount of money for each individual in a particular skill set. Agencies are subject to supply and demand in the applicant market which may result in different pay rates for similar skill sets depending on the current market.
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