Pricing Definitions
Bill Rate
The amount a client pays the staffing firm for each hour of a temporary or contract employee’s work.
A bill rate generally includes the worker’s pay rate, statutory costs, additional direct expenses, operating overhead, and the staffing firm’s gross margin.
Burden Rate
The total percentage or dollar amount added to an employee's base pay to cover all indirect employment costs.
The burden rate often includes statutory expenses, but a firm may also use the term more broadly to include benefits, paid time off, mandatory training, screenings, or assignment-specific insurance costs.
Pay Rate
The amount paid to the temporary or contract worker by the staffing firm.
The pay rate is one component of the total cost of employing that worker. It does not include employer payroll taxes, insurance, benefits, or other employment-related costs.
Gross Margin
The portion of revenue remaining after applicable direct costs are subtracted.
For a simplified staffing calculation:
Gross Margin % = (Bill Rate − Direct Costs) ÷ Bill Rate × 100
Depending on how a staffing firm structures its financial reporting, direct costs may include wages, payroll taxes, workers’ compensation, benefits, and other worker-related expenses.
Markup
The percentage added to the worker’s pay rate to calculate the client bill rate.
Markup formula:
Markup % = (Bill Rate − Pay Rate) ÷ Pay Rate × 100
Markup must cover more than profit. It also helps pay statutory expenses, workers’ compensation, recruiting costs, operating overhead, and other expenses associated with delivering the service.
Profit Margin
A measure of profitability after expenses are deducted from revenue.
Gross margin and net profit margin are not interchangeable. Gross margin must still support internal payroll, rent, technology, sales commissions, recruiting expenses, legal and compliance costs, marketing, financing costs, and owner profit.
Federal Unemployment Tax (FUTA)
A federal unemployment tax paid by employers.
The FUTA tax rate is 6.0% on the first $7,000 of applicable wages paid to each employee. Employers may generally receive a credit of up to 5.4% when eligibility requirements are met, resulting in an effective rate of 0.6%. State wage bases and credit-reduction rules may affect an employer’s total unemployment costs.
Social Security and Medicare Tax Rate (FICA)
Federal Insurance Contributions Act taxes help fund Social Security and Medicare.
The employer portion of Social Security tax is 6.2%, subject to the applicable annual wage base. The employer portion of Medicare tax is 1.45%, with no wage base limit. Tax limits can change, so staffing firms should verify current requirements when updating pricing assumptions.
State Unemployment Insurance Tax (SUTA)
An employer-paid unemployment tax administered at the state level.
Rates and taxable wage bases vary by state and may also depend on the employer’s history, claims experience, industry, or other factors.
Statutory Expenses
Taxes, insurance, and other employment expenses required by federal, state, or local law.
Depending on the worker, jurisdiction, and assignment, statutory expenses may include:
- Social Security tax
- Medicare tax
- Federal unemployment tax
- State unemployment insurance
- Workers’ compensation insurance
- Applicable state or local payroll costs
- Required paid leave or other jurisdiction-specific expenses
Operating Overhead
The ongoing expenses required to run the staffing firm.
Examples include:
- Internal salaries
- Recruiting and sales expenses
- ATS and CRM platforms
- Job advertising
- Office expenses
- Legal and compliance support
- Insurance
- Technology and cybersecurity
- Marketing
- Accounting
- Financing or cost of capital
Worker's Compensation Insurance
Insurance that covers qualifying work-related injuries and illnesses.
Workers’ compensation rates may vary significantly by jurisdiction, job classification, work environment, claims history, and insurance provider. A clerical assignment and an industrial assignment should not be assumed to carry the same risk or cost.