Every contract placement involves two rates. The client pays a bill rate to the staffing firm. The contractor receives a pay rate from the firm. The difference between them is often described as the agency's cut, which is only partly true, and the misunderstanding causes friction on both sides.
This article explains what usually sits in that gap, conceptually. We are deliberately not publishing percentages or typical figures: they vary so much by country, skill, seniority, engagement model and contract length that any single number would mislead more than it helps.
The three numbers
| Term | Who sees it | What it is |
|---|---|---|
| Pay rate | Contractor | What the contractor is paid per hour, day or month before their own taxes |
| Bill rate | Client | What the client is invoiced per unit of approved time |
| Spread | Firm | Bill rate minus pay rate, before the firm's costs |
People often call the spread the margin. It is not, because a large part of it goes on costs the firm carries by employing the contractor.
What the spread has to cover
When a staffing firm is the contractor's employer, as we are for the contractors we place, the spread typically covers some or all of the following.
Statutory employment costs
Employers usually owe contributions on top of the salary they pay. In the US that can include the employer's share of payroll taxes and unemployment insurance. In India it can include contributions to provident fund and state insurance schemes, among others. The specific items, rates and thresholds depend on the jurisdiction and the type of engagement, and they change. Treat any list, including this one, as illustrative and take advice for your situation.
Insurance
Workers' compensation or equivalent cover, general liability and, for many technology roles, professional liability or errors-and-omissions insurance. Clients in regulated industries often require specific levels of cover.
Benefits
Where the contractor is an employee of the firm, some benefits may be provided or legally required, such as paid leave or health cover, depending on the country and the contract.
Payment terms
The firm pays the contractor on a fixed calendar. The client pays the firm on its invoice terms, which are often later. The firm funds that gap, and with several contractors on long assignments that is a real cost. It is also what makes "paid on time" possible when a client's accounts team is slow.
Recruitment and account management
Sourcing, technical screening, reference and background checks, contracts, onboarding, timesheets, invoicing and the account manager who checks in with both sides through the term.
Risk
Replacement at no extra fee if a placement ends early for performance, and the occasional client that pays late or not at all.
Margin
What remains after all of that is the firm's actual margin.
Why the structure differs by engagement model
The shape of the bill rate changes with how the contractor is engaged.
- Contract staffing. The full picture above applies: the firm recruits, employs, pays and manages.
- Contract-to-hire. Similar to contract, with the conversion terms agreed up front. Those terms are part of the price, so ask about them at the start rather than at the conversion date.
- Project teams. Often priced against a statement of work, with milestone or monthly invoicing, rather than as a simple hourly rate per person.
- Payroll only. The client has already found the contractor, so there is no recruitment cost. The firm still employs, pays and insures them, and charges a payroll margin for that.
What moves the rates
For a given role, both the pay rate and the bill rate tend to move with:
- Skill scarcity. A narrow enterprise-platform specialism commands a different rate from a widely available one.
- Seniority and scope. Leading a workstream is priced differently from contributing to one.
- Location and working pattern. Where the contractor lives, whether the role is onsite, and whether shifted hours are required.
- Term. Very short engagements often carry a higher rate because the contractor faces a gap afterwards.
- Urgency. A start date next week narrows the pool.
- Compliance requirements. Clearances, specific background checks or unusual insurance levels add cost.
Questions clients should ask
- What does the bill rate include, and what is billed separately, such as expenses or overtime?
- How are statutory costs handled if they change during the contract?
- What are the conversion terms if we want to hire the contractor permanently?
- What happens if the placement ends early?
- If we agree a rate increase for the contractor, how much of it reaches them?
Questions contractors should ask
- Is my rate hourly, daily or monthly, and is it before or after deductions?
- Who is my employer, and which benefits, if any, come with the engagement?
- When exactly am I paid, and does that depend on when the client pays?
- If the client agrees a higher bill rate at extension, will my pay rate change?
A firm that is comfortable with its structure will answer all of these directly. We do not publish rates because they depend on the role, but we agree them per role before we search and explain what they cover.
Why transparency helps both sides
When clients see the bill rate as pure agency profit, they push it down, and the pressure lands on the pay rate. When contractors see the spread as a cut taken from their earnings, they feel underpaid even when the pay rate is fair. Neither view makes placements last longer.
Explaining the structure, without pretending the margin is zero, tends to produce better conversations at the points that matter: the initial rate, the extension and the rate review.
If you are pricing a contract role and want the structure explained for your specific case, send us the brief.