Bill rate vs pay rate
Bill rate vs pay rate is the difference between what a staffing firm charges a client per hour and what it pays the employee.
The spread must cover employer payroll taxesPayroll tax. Payroll tax is the umbrella term for every tax an employer calculates, withholds, or owes because it paid wages.Click to open the term, workers’ compensationWorkers’ compensation. Workers’ compensation is state-mandated insurance that pays medical expenses and partial lost wages when an employee is injured or becomes ill because of their job.Click to open the term, benefits, and overhead before any margin remains. A higher bill rate therefore does not mean a higher wage, and the two rates can change independently. A markup is the spread expressed as a percentage of the pay rate. Both rates travel with the assignment, so one employee on two assignments can carry two pay rates and two bill rates.
Which rate drives overtime and taxes?
Wages, overtime, and payroll taxes follow the pay rate, never the bill rate. You calculate overtime on the employee’s regular rate of payRegular rate of pay. Regular rate of pay is the rate federal overtime is built on, found by dividing a workweek’s total includable earnings by the hours actually worked.Click to open the term for the workweekWorkweek (FLSA). A workweek under the Fair Labor Standards Act is a fixed, regularly recurring period of 168 consecutive hours used to compute overtime.Click to open the term. An employee with multiple rates in one week has a weighted-average regular rate. Keep the two rates in separate fields, so a client invoice figure cannot leak into a paycheck.
| RATE | BELONGS TO | APPEARS ON | DRIVES WAGES AND TAXES |
|---|---|---|---|
| Bill rate | Client relationship | Client invoice | No |
| Pay rate | Employment relationship | Pay statement | Yes |
| Overtime bill rate | Client contract, often set apart from the pay premium | Client invoice | No |
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.