Glossary · Commercials
What is Pay rate
Definition
The hourly rate paid to the contractor before employer taxes and insurance. It is the input to every bill rate calculation, not the cost of employing them.
Applies to: US and UK · Reviewed by James Doyle
In practice
The pay rate is what the worker sees on their timesheet. What leaves your bank account is the pay rate plus employment burden — payroll taxes, workers' compensation, holiday accrual and any benefits you carry.
W-2 and PAYE contractors carry burden; genuine 1099 or limited-company contractors do not, but they carry classification risk instead. Price the two differently and document why.
Related terms
Bill rate
The hourly rate an agency charges its client for a contractor. It has to cover the pay rate, employment burden, funding cost and the agency's margin.
ReadEmployment burden
Every employer cost on top of the pay rate: payroll taxes, workers' compensation, holiday accrual and benefits. Typically 12% to 16% in the US.
ReadWorker classification
Whether a worker is an employee or an independent contractor in law. Getting it wrong creates back taxes, penalties and client indemnity claims.
Read
Put the theory to work.
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