How to calculate staffing markup

Staffing markup is the percentage added on top of a contractor's pay rate to reach the bill rate: markup = (bill rate − pay rate) ÷ pay rate. It answers a different question from margin, which is gross profit divided by the bill rate, and the two numbers are not interchangeable — a $25/hour spread on a $75 bill rate is a 50% markup but only a 33% margin. Below are the formulas for both directions, a burden rate built from the actual payroll cost rules, and worked examples you can check with a calculator.

Recruiting agency metrics covers markup and margin as one line item inside a broader glossary of agency numbers. This page is the deep version: how to build the burden rate correctly, how to convert between markup and margin in either direction, and a calculator template you can fill in for your own rates.

Markup and margin, defined precisely

Both start from the same gross profit per hour: bill rate minus pay rate minus burden costs. They divide it by a different number.

Gross profit per hour = Bill rate − Pay rate − Burden costs per hour

Markup   = Gross profit ÷ Pay rate            (profit as a % of what you pay the worker)
Margin   = Gross profit ÷ Bill rate           (profit as a % of what you bill the client)

Markup is always the larger number for the same dollar spread, because pay rate is always smaller than bill rate. Quoting "50% markup" and "50% margin" describe very different amounts of profit, and a client or a new recruiter who hears one and assumes the other will misjudge the deal by a wide margin (no pun avoided; it is the exact error this section exists to prevent).

Build the burden rate before you calculate anything

The burden rate is every cost of employing the contractor beyond their pay rate. Skipping it, or guessing at it, is the single most common way a desk thinks it made money and did not. Three components are close to universal in the United States; the rest vary by state and by your benefits offering.

Federal payroll taxes (apply everywhere)

• FICA (Social Security and Medicare): the employer pays 7.65% of wages — 6.2% Social Security plus 1.45% Medicare — matching the employee's own withholding. Source: IRS Topic no. 751, as of September 2026.
• FUTA (federal unemployment): 6.0% on the first $7,000 of each employee's wages for the year, reduced to a typical net rate of 0.6% by the standard credit most employers receive. Source: IRS, FUTA credit reduction, as of September 2026.

State and employer-specific costs (vary — confirm your own)

• SUTA (state unemployment insurance): state law sets the rate and wage base, and your specific rate depends on your state and your claims history. See the US Department of Labor's unemployment insurance tax topic page for how rates are set by state, as of September 2026.
• Workers' compensation: set by your insurer based on the job's classification code and your claims experience; a warehouse role and an office role on the same desk can carry very different rates.
• Benefits, if offered to contractors: health insurance contributions, retirement match, paid time off accrual — whatever your agency actually pays, per hour worked.

Converting between markup and margin

Use these when you know one and need the other:

Given markup, find margin:   margin = markup ÷ (1 + markup)
Given margin, find markup:   markup = margin ÷ (1 − margin)

Keep this table nearby if you negotiate with clients who talk in margin percentages while your spreadsheet is built around markup, or the reverse. A client asking for "35% margin" is asking for roughly a 54% markup, a materially bigger ask than the numbers look like side by side.

Worked example: pay rate to bill rate

An invented contract role, solving forward from a target markup:

Note the check step: the 40% markup translated into a 26.8% margin, not the 28.6% the conversion table above would suggest for a "pure" 40% markup, because burden costs were folded into the loaded cost before the markup was applied rather than after. Decide once, in writing, whether your desk applies markup to pay rate alone or to pay rate plus burden, and use it consistently — mixing the two methods across roles is how two recruiters quote different rates for the identical job.

Worked example: bill rate to pay rate

The reverse problem: a client gives you a bill rate ceiling and you need to know what you can pay.

This is the calculation that tells you, before you make an offer to a candidate, whether the client's budget can support the pay rate the candidate wants. Running it before the offer call avoids the conversation where you have to walk a number back down.

A markup calculator template

Copy this into a spreadsheet. Fill the bracketed cells; the rest are formulas.

Inputs
  Pay rate                    [enter]
  FICA (employer)              7.65%                      = Pay rate × 7.65%
  FUTA (net)                   [confirm current rate]     = Pay rate × rate (capped at $7,000/yr)
  SUTA                         [confirm your state rate]  = Pay rate × rate (capped at your state's wage base)
  Workers' comp                [confirm your class code]  = Pay rate × rate
  Benefits, if any             [enter $/hr]

Loaded cost = Pay rate + FICA + FUTA + SUTA + Workers' comp + Benefits

Method A — target markup on pay rate:
  Target markup %             [enter]
  Profit  = Pay rate × Target markup %
  Bill rate = Loaded cost + Profit
  Actual margin = Profit ÷ Bill rate   (report this — do not skip it)

Method B — target margin on bill rate:
  Target margin %             [enter]
  Bill rate ceiling            [enter, if given by client]
  Profit = Bill rate ceiling × Target margin %
  Max loaded cost = Bill rate ceiling − Profit
  Max pay rate = Max loaded cost ÷ (1 + burden rate as decimal)

When markup should move, and when it should not

Common mistakes

• Calling a markup a margin in a client conversation. Use the conversion table above before you speak the number out loud.
• Forgetting the FUTA and SUTA wage base caps. Both taxes stop applying to a given employee's wages once they cross the annual cap, which matters for salaried or high-pay-rate contractors partway through the year.
• Using last year's SUTA rate. State unemployment insurance rates can change annually based on your claims experience; check it at the start of each year, not once and never again.
• Applying markup to pay rate in one deal and to loaded cost in another. Pick one method for the desk and write it down, per the note in the first worked example.
• Treating a markup you saw quoted online as a target. It was calculated with a burden rate, payment terms, and risk profile you cannot see. Build your own number from your own costs.

Negotiating a markup with a client

If a client asks you to justify the number, the burden rate table is the strongest evidence you have: it is arithmetic they can check, not a percentage you picked. Show loaded cost separately from profit, so the conversation is "here is what this person costs to employ legally, and here is our margin on top" rather than a single opaque markup figure. For the rest of the fee conversation — what to trade instead of discounting, and word-for-word replies to common pushback — see how to negotiate recruitment fees.