Last updated · ApTask
What is the difference between a bill rate and a pay rate?
The pay rate is what the contractor earns per hour. The bill rate is what the staffing firm charges the client for each hour that contractor works. The difference is the spread, which has to cover the employer’s payroll taxes, insurance, benefits and overhead before any of it becomes profit.
For a W-2 contractor, the firm pays the employer share of Social Security and Medicare, federal and state unemployment tax, and workers’ compensation on top of wages (IRS employment taxes (external source)). These costs are often called “burden”. For a 1099 or C2C contractor, the worker carries their own taxes, so the burden is lower — which is why margins differ by engagement type.
Bill rates are set by the market for the skill, the client’s rate card or VMS program, and the length of the engagement. Pay rates are set by what the candidate will accept for the role. The staffing firm’s job is to find a candidate and a rate that leave enough spread to cover burden and still deliver value to both sides.
What is the difference between markup and gross margin in staffing?
Markup measures the spread against the pay rate; gross margin measures it against the bill rate. With a pay rate of 70 an hour and a bill rate of 100, the spread is 30: a markup of about 43% (30 ÷ 70) and a gross margin of 30% (30 ÷ 100). Same dollars, two percentages.
Worked example (illustrative numbers only, per hour):
- Bill rate: 100 · Pay rate: 70 · Spread: 30.
- Markup = spread ÷ pay rate = 30 ÷ 70 ≈ 42.9%.
- Gross margin = spread ÷ bill rate = 30 ÷ 100 = 30%.
- Subtract employer burden (for a W-2 worker) and overhead to reach profit.
Clients and VMS rate cards usually negotiate markup; operators usually manage to gross margin. Keep both straight — see the glossary.
How do staffing agencies make money on direct hire placements?
On a direct hire, the agency does not employ the worker, so there is no hourly spread. It earns a one-time placement fee, usually a percentage of the new hire’s first-year base salary, payable once the candidate starts. Most agreements include a guarantee period in which the agency must replace a hire who leaves.
In the ApTask Franchise, direct hire fees are shared on a separate cascade from hourly placements and land after the qualifying period. See contract vs contract-to-hire vs direct hire.
What reduces a staffing agency’s profit on a placement?
Employer taxes and insurance on W-2 workers, benefits, VMS and MSP program fees, client volume discounts and rebates, late or unpaid invoices, the cost of funding payroll before the client pays, and recruiter compensation. A healthy bill rate can still produce thin profit if these are not priced in up front.
Working capital is the hidden cost: every placement must be funded until the client pays — see how payroll funding works.
How does an ApTask franchisee share in the margin?
ApTask bills the client and pays the contractor; the franchisee receives a share of the gross profit after the fees set out in the FDD. The FDD sets minimum gross margins — currently 18% for C2C/IC and 32% for W-2 — and margin above those floors shares favorably with the franchisee.
Client discounts, rebates, penalties, VMS tool costs and collection costs reduce the profit pool before the share is calculated. The franchisee does not fund payroll. ApTask’s financial performance representation, if any, is in Item 19 of its FDD (16 CFR 436.5 (external source)), reviewed with you at the discovery call on the franchise page.