Bill Rate Vs. Pay Rate: What Do Recruiters Need to Know?

Recruiters—whether as part of a business or a separate recruitment staffing agency—play a fundamental role in connecting companies with quality talent.

Their role necessitates having a broad basket of skills and knowledge, covering everything from communication and negotiation to financial terms and concepts—chief among which are the concepts bill rate and pay rate.

Knowing what contract bill rates and hourly pay rates are, and how to calculate them, helps recruiters and staffing firms of all industries:

Price their services.
Determine final pay for employees and contract workers.
Establish an appropriate mark-up and sustainable margin of profit.

It also helps them avoid incorrect billing—the object of much international attention following recent incidents such as the overcharging of UK consumers by energy suppliers over a 5-year period resulting in £20.4m in compensation.

In what follows, we examine billing and rates of pay, and how you can reap the benefits that understanding these concepts offers.

Why Are Contract Bill Rate and Hourly Pay Rate Important for Recruiters?

Knowing your bill rate from your pay rate—and why both concepts matter to your organisation—is necessary for recruiters wanting to develop effective pricing strategies that account for mark-up, or the total cost of overheads plus profit.

As such, being able to calculate these metrics is critical to managing business expenditure and profitability, while also helping recruiters to offer competitive compensation to their prospective employees or contract workers.

Understanding these rates and their composition—made easier through automation with apps like TimeCamp—also favourably impacts recruiters’ negotiations with clients and candidates.

What is Bill Rate?

In simple terms:

The bill rate is the amount you charge clients for your services.

Understanding bill rates is crucial for project managers to calculate business expenses and profit margins.

It includes your worker’s or independent contractor’s rate of pay, plus mark-up—that is, your company’s overhead and operating costs, perks, legally mandated expenses, and your profits.

Bill rates are usually expressed as a fixed amount or a per-hour rate, and are calculated based on adding the candidate’s salary per hour along with any other costs, fees, and taxes.

Tracking bill rates (or hours billed), for example with an app like TimeCamp, helps companies identify potential money and cash flow issues early.

How to Calculate Bill Rate?

For example, if an employee’s pay rate is $40 per hour, and mark-up is $20 (comprising overheads such as office space, utilities, and software at $12, and taxes and benefits at $8), the total cost is:

$40 + $20 = $60 per hour.

If we then assume a 25 percentage (%) profit margin, the additional amount is:

25% × $60 = $15 per hour.

The final bill rate then becomes: $60 + $15 = $75 per hour.

Performing this calculation—handled automatically by time tracking software TimeCamp—helps businesses, recruiters, and staffing firms work out the total cost of the services they need to charge customers, ensuring they cover all costs while remaining profitable.

What is Employee Pay Rate?

In contrast with bill rate, pay rate refers to the amount paid to workers or contractors for their services, either by hour, day, or project.

Pay rate can vary depending on a number of factors including total weekly work hours, the standard industry hourly rate, and the employee’s or contract worker’s role and level of experience.

Rate of pay has a big impact on budgeting and payroll, and is therefore an important metric for recruiters and their employees to understand.

Importantly, rate of pay does not take taxes or deductions like health insurance or social security into consideration. Industry conditions can also change pay rates based on the current unemployment rate or monthly or weekly salary trends.

How to Calculate Pay Rate?

Working out the pay rate per hour is far simpler than the bill rate, as it involves using one simple formula. As an example, let’s say an employee earns $1,200 for 45 hours of direct labor, their pay rate is calculated as:

Pay Rate = $1,200 ÷ 45 hours worked = Employee receives $26.67 per hour.

Employees expect fair and competitive pay. This influences their attraction, retention, and overall satisfaction. For this reason, getting this calculation right (which in turn influences per-hour pay, as well as weekly salary and monthly salary) is critical for recruiters, employees, and contract workers.

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

Bill rate covers all costs associated with providing services, including overheads, operational costs, and profits.

By contrast, rate of pay concerns worker compensation, and excludes profits.

Understanding the difference between pay rate and bill rate is vital for money and cash flow management.

Another way to look at it is this:

Bill Rate = Pay Rate + Mark-up (Note: mark-up comprises the payroll burden rate—the other expenses beyond pay rate, such as administrative expenses, legal requirements, operational costs, overheads, taxes, and perks—and profit margin).

For this reason, pay rates across all industries are always lower than bill rates. Additionally, while contract bill rates tend to be negotiated with customers, pay rates are usually decided internally.

What is the Bill Rate Range?

According to industry standards, a common multiplier for calculating bill rates is between 1.3 to 1.6 times the pay rate. As a rough guideline, avoid deviating far much from this figure when establishing your own bill and pay rates.

What Are the Common Misconceptions Surrounding Bill Rate Vs. Pay Rate?

Below we clear up four common misconceptions around bill and pay rate:

1. Bill rate and pay rate are NOT the same

As we have seen, the bill rate is the total sum you charge your clients, and includes your employee or contractor compensation, plus mark-up (overheads, operational costs, benefits, legally mandated expenses, and your profits).

By contrast, hourly pay rate is the sum you pay your employees or contract workers. It doesn’t include business mark-up.

TimeCamp’s billing functionality takes care of these differences, automatically calculating your company’s pay and bill rates for you. Book your free demo here.

2. Billable hours are not the same as hourly wages

Hourly wages concern employees’ or contract workers’ pay rate; by contrast, billable hours cover pay rate and mark-up (also known as the payroll burden rate plus profit margin). The former is paid to workers, whereas the latter is invoiced to customers.

3. Higher bill rates don’t necessarily mean higher profits

While a high bill rate might reflect a high margin of profit, it could also indicate higher overheads and operating costs, administrative costs, benefits, or legally mandated expenses—in other words, any of the other elements that constitute business mark-up.

4. Underestimating the impact of overhead costs

While overheads may influence your employees’ pay rate, technically it’s the bill rate that reflects this cost.

Either way, recruiters across all industries need to know their overheads. Underestimating them will negatively impact the business’s profits—something we discuss in more detail below.

How Do Overhead and Operational Costs Affect Final Rates?

As we have seen, the essential difference between pay rate vs. bill rate is mark-up, which not only includes taxes, benefits, and profits, but also overheads and operational expenses. Bill rate accounts for these costs, whereas pay rate technically doesn’t.

Knowing this, it’s important that recruiters factor in overhead and operational costs within their company’s mark-up, and therefore their final bill rate. Underestimating these costs within the bill rate has only one consequence for businesses: a hit to their profit margin.

With pay rate, however, it’s a different story: recruiters don’t need to worry about overheads and operational costs in quite the same way as when they calculate bill rate. Why? Because, as we’ve seen, pay rate doesn’t technically include mark-up.

Long story short? If you’re working out your pay rate, there’s no need to sweat operational and overhead costs—as much as it may be tempting to reflect these in your employees’ and contract workers’ final pay.

By contrast, make sure to accurately factor these costs into the bill rate—failure to do so will eat into your company’s profits.

Want TimeCamp to automate these calculations for you? Start your free trial today.

How Do Recruiters Identify the Right Profit Margin and Keep It Sustainable?

Understanding the industry benchmark around profit margins, and how your competitors are pricing theirs, is good practice for establishing your own sustainable margin.

Likewise, you should also review and adjust your profit margin based on market demand and conditions, and your operational costs.

Another factor to bear in mind is the value proposition of your service offering. If you’re providing a service that’s genuinely unique and yields a high return on investment for your clients, there’s every reason to reflect this in your profit margin, and with it, your pay and billing.

What Factors Should Recruiters Consider When Setting and Adjusting Billing and Pay Rates?

A lot goes into determining your final hourly pay rate and bill rate. When it comes to calculating your bill, TimeCamp suggests consulting the following:

Market rates and industry billing standards.
Competition and client pay expectations.
The scope of the work in question.
The nature of the deliverables.
The complexity of the work.
The expertise necessary.
The time required.

Since rate of pay is also key to your final bill, it’s worth also considering:

The local job market and cost of living: more expensive regions with more competition typically require better pay.
Your employees’ or contractors’ experience and skill level: higher expertise normally commands higher pay.

Finally, don’t forget to factor in your business’s overhead and operating costs, together with your desired profit margin, when calculating these figures—especially the bill rate.

Want to see how TimeCamp can help with these calculations?

Track time in projects and tasks, create reports, and bill your clients in just one tool.

Book your free demo here

How Can Recruiters Ensure Legal and Regulatory Compliance When Setting Bill and Pay Rates?

A central consideration for recruiters when setting bill and pay rates is legal and regulatory compliance. This includes understanding local minimum wage laws, overtime pay regulations, and tax obligations—for example, those stipulated in the U.S. Fair Labor Standards Act (FLSA)—as well as relevant collective bargaining agreements and worker classification laws in these territories. Understanding federal unemployment tax and state unemployment insurance tax can also greatly influence billing and hourly rates.

Additionally, be mindful of legally mandated health insurance costs, and social security and healthcare costs such as National Insurance Contributions (NICs) in the UK, as well as those stipulated under the Federal Insurance Contributions Act (FICA) in the USA and Regulation (EEC) No 1408/71 in the EU.

Recruiters that don’t reflect these considerations in their bill and pay rates are liable to legal attack. They should therefore keep abreast of hourly wage developments; likewise, time spent regularly reviewing and updating their worker’s pay rate policies as appropriate is also worthwhile.

Additionally, they should also make sure to display any changes transparently in their bill and pay rate calculations and disclosures.

While not legally binding, recruiters should also be aware of Living Wage guidelines, which influence fair pay practices in many sectors. According to PwC, Living Wages are now present in 164 countries worldwide.

How Can Recruiters Communicate Bill Rate and Pay Rate to Clients and Candidates?

As a recruiter, you may be answerable to both candidates and clients. Where this is the case, you’ll need to be ready to justify both rates of pay and billing, depending on who you’re talking to.

So how do you communicate these figures to candidates and clients? Simply, by being transparent about their composition, and how you have arrived at the final figure.

In the case of discussing rates of pay with candidates, this typically involves transparency around:

The level of expertise required for the job.
Industry conditions and compensation.
The candidate’s wider experience.
The candidate’s cost of living.
Their overall skill level.

Ideally, this conversation should also reference your company’s policies around rate of pay. Having a clear set of standards around pay can help with managing expectations and reducing misunderstandings both at the start of a new job and later down the line.

For discussions with clients around billing, not only will you need to justify the pay rate, but also those other elements comprising your business’s mark-up, such as legally mandated fees, overheads, and operating costs.

Arguably the most effective way of justifying your bill rate is with reference to your value proposition, highlighting to prospective clients how your service offering delivers a superior return on investment than your competitors’.

What Role Does Time Tracking and Billing Software Play in Managing Bill Rate Vs. Pay Rate?

App-based time tracking software such as TimeCamp is an excellent way of tracking and recording, in real time, billable and non-billable work hours (as opposed to internal tasks). This enables companies to calculate their rates of pay and billing with precision, simplifying their project management.

Using TimeCamp, you can assign specific timesheet categories to projects and configure them as billable or non-billable. This functionality explains why organisations that bill clients with TimeCamp experience, on average, a 14.8 percentage billability increase.

TimeCamp also helps businesses track their profitability across client segments and job types, facilitating efficient resource allocation, decisions around expanding or scaling back, and future staffing and recruitment strategies.

Our transparent, error-free automation further simplifies matters with accurate invoicing and effortless payroll processing for companies and their clients. Our invoicing module allows you to add billable hours worked directly to invoices.

Likewise, fully customizable reports make bill rates and rates of pay easy to understand for employees and customers, providing detailed insights into how teams are spending their time.

Beyond these features, TimeCamp’s integration with popular accounting and project management tools (for example, Asana, Jira, and Slack) complements and streamlines your company’s workflow.

Want a try a free demo of our app? Book your free demo here.

Conclusion: Why Should Recruiters Prioritize an In-Depth Understanding of Bill Rate Vs. Pay Rate?

Having a clear understanding of bill rates and rates of pay, how they differ, and how to calculate both is important for any recruiter—whether as part of a business or an independent recruitment agency.

Having a firm grip on these concepts facilitates accurate billing, fair compensation for candidates and employees, and a sustainable profit margin.

Thanks to time tracking software like TimeCamp, which features highly accurate automated billing and invoicing, recruiters can now instantly and effortlessly calculate bill rates and rates of pay—benefiting everyone from candidates to clients.

Try best time management app!

Free time tracking & easy attendance, project profitability analysis and precise billing.

Try for free!

Sources

Department of Labor. “Wages and the Fair Labor Standards Act.” Accessed March 22, 2025. https://www.dol.gov/agencies/whd/flsa.

European Parliament. “Social Security Cover in Other EU Member States.” Accessed March 22, 2025. https://www.europarl.europa.eu/factsheets/en/sheet/55/social-security-cover-in-other-eu-member-states.

GOV.UK. “National Minimum Wage and National Living Wage Rates.” Accessed March 22, 2025. https://www.gov.uk/national-minimum-wage-rates.

Internal Revenue Service. “Topic No. 751 Social Security and Medicare Withholding Rates.” Accessed March 22, 2025. https://www.irs.gov/taxtopics/tc751.
The Guardian. “UK energy suppliers paid out £20m for billing mistakes in five years.” Last modified February 15, 2025. Accessed March 22, 2025. https://www.theguardian.com/money/2025/feb/15/energy-suppliers-billing-mistakes-complaints-british-gas.

Check out our other popular posts

Robert Lowton Robert Lowton is the director of Lobster Copy, a strategic copywriting consultancy focused on driving business turnover through high-quality branding, lead generation, and conversion copywriting. Rob has extensive experience as a brand and content strategist, copywriter, coach, and as an international language lecturer. He lives in Norwich, England.

CUSTOMER STORIES