Resources/Glossary/Staffing and agencies
In staffing, the pay rate is the hourly amount a staffing agency pays a contract or temporary worker. It is separate from the bill rate, which is what the agency charges the client for that worker's time.
The gap between pay rate and bill rate is where an agency covers its costs and earns its margin. Before any profit, the agency must cover the employer burden on that pay rate: payroll taxes, workers compensation insurance, any benefits it offers, and often paid sick leave required by state or city law. What is left after burden is the agency's gross profit on each hour.
Pay rates are usually quoted as W-2 hourly rates, but they can also be set for 1099 independent contractors or corp to corp arrangements. Each changes who pays which taxes, so a rate is never comparable without knowing the arrangement. Overtime matters too: nonexempt hourly workers are generally owed overtime under federal and state wage laws, and the agency as employer is responsible for paying it.
Recruiters set the pay rate by balancing what the candidate needs, what the market pays and how much room the bill rate leaves.
Getting the pay rate wrong costs you either the candidate or the margin. Set it too low and contractors walk for a few dollars more. Set it too high and the agency loses money once burden is counted. Agency recruiters who understand pay rate, burden and bill rate together quote with confidence and protect the desk's gross profit.
A client agrees a bill rate of 75 dollars an hour for a contract business analyst. The recruiter offers a W-2 pay rate of 50 dollars. The agency estimates its burden at about 20 percent of pay, or 10 dollars, so it keeps roughly 15 dollars an hour in gross profit. These numbers are an illustration only.
The pay rate is what the agency pays the worker per hour. The bill rate is what the agency charges the client per hour for the same work. The difference, after taxes and other employer costs, is the agency's gross profit.
They start from what the market pays for the skill and location, what the candidate expects and how much room the client's bill rate leaves after employer burden. Many agencies use target margins to decide the highest pay rate they can offer.
No. A 1099 contractor pays their own self employment taxes and usually gets no benefits, so they typically ask for a higher hourly rate than a W-2 worker. Worker classification rules also apply, so do not choose 1099 just to save money.
Written by recruiters at Work Insiders. Part of the recruiting and HR tech glossary. Updated October 2026.