What is a bill rate?

A bill rate is the amount you charge clients per hour for services rendered by your employees or contractors. It ensures you cover costs, pay workers fairly, and maintain profitability. Learn how bill rates affect your bottom line and how to calculate them for contractors and employees.

Bill rate represents the hourly rate you charge clients for services provided. It factors in:

• Pay rates
• Overhead costs
• Legally mandated costs
• Profit markup

In service-based industries, a well-calculated bill rate ensures competitive pricing, profitability, and fair worker compensation.

How does bill rate impact profit margins?

Your bill rate should cover all expenses and include a profit margin. Key costs include:

• Worker pay rates
• Operating costs (e.g., rent, software, utilities)
• Legally mandated costs (e.g., taxes, benefits)

To maintain profitability, your bill rate must do more than cover these and other expenses; it must earn you profit. This is why every bill rate includes a profit margin or markup. The markup protects your bottom line and ensures you don’t operate at a loss.

For example, if your total costs per hour are $95 and your profit markup is 20% ($19), your bill rate would be $114/hour. This ensures your business covers all expenses while earning a profit.

Pay rate vs. bill rate: What’s the difference?

Bill rate is how much you charge clients for every hour of work completed by a contractor or employee.

Pay rate is how much you pay said contractor or employee per hour for their work. Because the bill rate includes pay rate—and other expenses—it is always higher than pay rate.

• Pay rate: The amount you pay workers per hour.
• Bill rate: The amount you charge clients, which includes pay rates and other costs.

Bill rates are always higher than pay rates due to overhead, legally mandated costs, and profit margins.

What are the benefits of a well-calculated bill rate?

Calculating your bill rates correctly helps you balance costs with revenue collection for maximum profitability. It also helps you keep track of all the expenses involved in providing a service, including those not immediately visible, so you can offset them and make a profit.

Clear bill rates also allow you to offer competitive rates to your clients without underpaying your workers and vice versa, creating a tradition of trust in billing and payroll.

To sum up, a precise bill rate helps:

• Balance costs and revenue for profitability
• Track hidden costs to ensure they’re accounted for
• Offer competitive pricing to clients without underpaying workers
• Build trust with clients through transparent billing

How to calculate bill rate

To calculate bill rate, use the following formula:

Bill Rate = Pay Rate + Operating Costs + Legally-Mandated Costs + Profit Markup

Let’s try an example. You pay a worker $70 per hour. To facilitate their work, you pay for software, office space, and utilities, amounting to $20 an hour. The worker also costs you $5 an hour in legally mandated costs like taxes and benefits, and you're shooting for a 20% profit markup.

To determine your bill rate, we first calculate your total costs:

$70 (pay rate) + $20 (overhead) + $5 (legally-mandated costs) = $95

Next, we factor in your profit markup, which is 20% of your total costs:

20% x 95 = $19 per hour

Therefore, your bill rate would be:

$95(total costs) + $19 (profit margin) = $114 per hour

This calculation means if you charge your client $114 per hour, you’ll cover all your operating costs, pay your workers, and make a $19 profit for every billable hour.

However, calculating bill rates is not always as straightforward, especially if you hire remote workers and contractors. Deel's contractor management system features an automatic bill rate calculator you can use to determine bill rates for different types of employees and work contracts.

Contractor bill rates: How do they differ?

Contractor bill rates exclude overhead costs like office space or equipment, as most contractors handle their own setups and taxes. To calculate:

1. Determine the contractor’s desired pay rate or divide their target annual salary by 2,080 (billable hours per year).
2. Add your profit markup.
3. Ensure alignment with market rates and the client’s budget.

Factors impacting contractor bill rates

• Client budget and expectations
• Market conditions
• Regional pricing differences
• Contractor skill levels
• Project scope and time required

Proper classification also affects bill rates. Misclassifying a contractor as an employee could lead to compliance risks. Deel’s AI classifier ensures accurate worker classification.

Streamline contractor management with Deel

Deel simplifies managing international contractors by automating HR tasks, mitigating misclassification risks, and ensuring compliance. With Deel, you can: Onboard contractors with compliant agreements in 150+ countries.

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