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Bill Rate vs Pay Rate: What’s the Difference?

   |   MBO Partners   |   January 10, 2018

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Bill rate and pay rate are easy terms to confuse—they both factor into the decision of how much you should charge for your services as an independent contractor.

When negotiating with a client at the start of a project, make sure you are clear on your rates, and if you are discussing dollars in terms of bill rate or pay rate.

What is a Bill Rate?

Bill Rate Definition: the amount a company or professional charges per hour of work.

In other words, bill rate is the amount independent professionals charge clients pre-taxes, fees, and discounts. It factors into the costs you need to cover to make your target income. This rate is the foundation on which you build your business.

From there, you’ll need to subtract for taxes, fees, and other markups that may be factored into your pay rate.

For example, if your bill rate is $100 per hour, your pay rate may drop to $65 after taxes (30%) and fees (5%).

What is a Pay Rate?

Pay Rate Definition: the amount of money workers are paid per hour, week, etc.

In other words, pay rate is the amount of income independent professionals are actually paid (and taxed on). For the purposes of your discussion with a client, a bill rate is your net pay after taxes and any fees charged to you or the client.

Don’t know a good starting pay rate? We suggest you download the People Ticker app, which helps you create a market-based rate for your skill set and geographic area.

Then, once you’ve figured out a total pay rate, you’ll want to check out our simple-to-use cost-based bill rate calculator, which indicates how much you should charge for your services after adding in all necessary costs.

The bottom line is simple: know which rate type you are discussing when speaking with a client or recruiter. If it’s unclear, ask.

 


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