Bill Rate Calculator
Enter the contractor pay rate and every cost component - payroll taxes, workers compensation, benefits, overhead, and your profit target - to get the hourly bill rate you should charge the client, the gross profit per hour, and your gross margin. The donut chart shows exactly how each dollar of the bill rate is split between pay, burden, overhead, and profit. Switch to Markup mode if you already know the markup percentage, or use Target Margin mode to reverse-solve the required bill rate from a desired gross margin percentage.
Formula
Worked example
A staffing agency places a contractor at $45/hr. Burden: FICA 7.65% + FUTA 0.6% + SUTA 2.7% + workers comp 3% + benefits 5% = 18.95% of $45 = $8.53/hr. Add $5 overhead and $6 profit = base of $64.53/hr. No MSP fee, so bill rate = $64.53/hr. Gross profit = $64.53 - ($45 + $8.53 + $5) = $6.00/hr. Gross margin = $6.00 / $64.53 = 9.3%. The agency should raise the profit target or trim overhead to reach a 20%+ margin.
What is a bill rate and how is it different from pay rate?
The pay rate is what the contractor takes home per hour. The bill rate is what you charge the client. The gap between them is where your business lives. It must cover every employer cost you absorb: FICA (employer share of Social Security and Medicare), federal and state unemployment taxes (FUTA and SUTA), workers compensation insurance, any benefits you provide, your overhead, and your profit. If you set the bill rate too low, you can fill a position and still lose money on it. If you set it too high, you risk losing the bid. Bill rate is not the same as markup, and markup is not the same as gross margin. A 50% markup on a $40/hr pay rate gives a $60/hr bill rate. The gross margin on that placement, assuming $7/hr in burden and $3/hr in overhead, is ($60 - $50) / $60 = 16.7%. Confusing these two numbers is one of the most common pricing mistakes in staffing.
The build-up method: costing every dollar
The most reliable way to set a bill rate is to build it up from first principles. Start with the pay rate. Multiply it by the total burden rate to get employer taxes and benefits per hour. Add a per-hour overhead allocation. Add your target profit per hour. If the client uses a vendor management system (VMS) or managed service provider (MSP), divide the subtotal by (1 minus the fee percentage) to gross up for that fee, because the fee is charged on your bill rate, not subtracted from your cost. Burden rates in the United States typically range from 15% to 30% of the pay rate. FICA is fixed at 7.65% for most workers. FUTA is usually 0.6% on the first $7,000 of wages. SUTA varies from under 1% to over 10% depending on state and the employer experience rating. Workers compensation premiums depend heavily on the job classification: clerical work may be under 1%, while electrical or roofing work can exceed 20%. Benefits and PTO accrual add another 0% to 15%.
Gross margin vs. markup: which number should you manage?
Markup is computed on cost (pay rate), so it is the easier number to quote in a negotiation. But gross margin is the number that drives profitability, because it is computed on revenue (bill rate), which is what you actually collect. A 30% markup produces only a 23% gross margin, and a 50% markup produces only a 33% margin. Most staffing finance teams manage targets in margin terms rather than markup terms, because margin percentages are directly comparable across different pay rate levels and contract types. A useful rule of thumb: to convert markup to margin, use Margin = Markup / (1 + Markup). A 30% markup is a 23% margin; a 50% markup is a 33% margin; a 100% markup is a 50% margin. To convert margin to markup: Markup = Margin / (1 - Margin).
Contract projection and profitability at scale
A single percentage point of gross margin may seem small, but it compounds across hours and headcount. On a 6-month, 40-hour-per-week engagement for one worker, a $1/hr swing in the bill rate is worth about $1,040 in gross profit over the contract. With 10 workers on the same contract it is $10,400. This is why staffing operations teams track margin per placement closely and why small rate concessions made at the desk level can have a significant impact on branch or division profitability. The contract projection table in this calculator shows cumulative revenue and gross profit week by week so you can model the effect of changes to headcount, contract length, or bill rate before you commit to terms.
Typical gross margins by staffing segment
| Staffing segment | Typical gross margin | Typical markup | Notes |
|---|---|---|---|
| Light industrial / warehouse | 15-25% | 20-35% | High volume, thin margins, burden-heavy |
| Clerical / administrative | 20-28% | 30-45% | Moderate competition, lower burden rates |
| IT / technology | 25-40% | 35-60% | High pay rates, less price-sensitive clients |
| Finance and accounting | 22-35% | 28-55% | Project-based demand, specialized skills |
| Healthcare (clinical) | 25-45% | 40-80% | High compliance cost, strong demand |
| Engineering | 20-30% | 28-45% | Long contracts, specialized but competitive |
| Executive / direct hire | 15-25% (of salary) | N/A | Fee-based, not spread-based |
Industry benchmarks for staffing agencies. Actual margins depend on local labor markets, client leverage, and contract terms.
Frequently asked questions
What is a typical staffing agency markup?
Markups typically range from 20% to 75% depending on the staffing segment. Light industrial and clerical roles are often marked up 25-45%. IT, finance, and engineering roles tend to carry 35-60% markups because the employer burden (workers comp, benefits) is lower as a percentage of the higher pay rate, so the agency needs a higher markup to reach the same dollar margin. Healthcare staffing can exceed 75% due to compliance costs.
What is the difference between gross margin and markup?
Markup is the premium over the pay rate, expressed as a percentage of the pay rate. Gross margin is the gross profit expressed as a percentage of the bill rate (revenue). A 50% markup means the bill rate is 1.5x the pay rate; the gross margin on that same placement is 33%, not 50%. The formula is: Gross Margin = Markup / (1 + Markup). Always confirm which one a client or colleague is quoting before comparing numbers.
What does burden rate include?
Burden rate covers every employer cost beyond the base pay: employer FICA (6.2% Social Security plus 1.45% Medicare = 7.65%), FUTA (typically 0.6% on the first $7,000 of wages), SUTA (varies by state and employer experience rating, often 1-4% for new employers), workers compensation insurance (0.5% for clerical to over 20% for high-risk trades), and any employer-paid benefits such as health insurance, 401k contributions, or PTO accrual. Together these typically add 15-30% to the raw pay rate.
What is an MSP or VMS fee and how do I account for it?
A Managed Service Provider (MSP) manages the contingent workforce program for a large client, and a Vendor Management System (VMS) is the software platform they use. Staffing suppliers are often charged a fee of 2-5% of the bill rate for access to these programs. Because the fee is calculated on your bill rate (not your cost), you must gross up your pre-fee bill rate by dividing by (1 - fee rate). For example, if your all-in cost plus profit is $60/hr and the VMS fee is 3%, your bill rate should be $60 / (1 - 0.03) = $61.86/hr, not $60 + $1.80 = $61.80.
What gross margin should a staffing agency target?
Most staffing firms target 20-30% gross margin on temporary placements, with professional and IT staffing firms often achieving 25-40%. Below 15% is generally considered too thin to sustain operations once G&A, sales, and recruiting costs are deducted. The reference table in this calculator shows typical ranges by segment. Note that gross margin is not net profit: internal costs (recruiter salaries, branch overhead, marketing) are deducted from gross profit to arrive at EBITDA.
How do I convert an annual salary to a bill rate?
Divide the annual cost (salary plus burden) by the number of billable hours per year, then add overhead and profit. A standard full-time year is 2,080 hours, but you may use fewer billable hours if you expect downtime. For example, an employee with a $90,000 salary, 20% burden ($18,000), and 1,800 billable hours has a loaded cost of $108,000 / 1,800 = $60/hr. Add $5 overhead and a 20% gross margin target: since margin = GP / BR, BR = fully burdened cost / (1 - target margin) = $65 / 0.80 = $81.25/hr.
How does the target margin reverse-solve work?
Target margin mode starts with your desired gross margin percentage and works backward to the required bill rate. The formula is: Bill Rate = Fully Burdened Cost / (1 - Target Margin). For example, if your fully burdened cost (pay + all employer taxes + overhead) is $55/hr and you want a 25% gross margin, the required bill rate is $55 / (1 - 0.25) = $73.33/hr. This is the most direct way to set a price when your client asks for a number and you need to protect a specific margin target, which is common in competitive bids and MSA negotiations.