How Do You Calculate Staffing Markup vs. Gross Margin, Burden Included?

What goes into a staffing burden rate

Burden is the employer’s cost on top of each dollar of wages, written as a percentage of wages. Kforce’s 10-K for 2025 lists what it carries as the employer of its consultants: the employer’s share of payroll taxes, federal and state unemployment taxes, workers’ compensation insurance, and health, welfare and retirement benefits. Recruiting, background checks and onboarding are costs of a placement, not of an hour; keep them out of the rate.

• Social Security and Medicare. IRS Publication 15 for 2026 puts the employer’s share at 6.2 percent of wages up to the year’s wage base and 1.45 percent with no limit: 7.65 percent together below the base.
• Federal unemployment tax. The 2025 Form 940 instructions put FUTA at 6.0 percent of each employee’s first $7,000 in a calendar year, less a credit of up to 5.4 percent for state tax; the Department of Labor puts the result at 0.6 percent, at most $42.00 per employee per year, where no credit reduction applies.
• State unemployment tax. Each state sets its own wage base and rate. Florida taxes each employee’s first $7,000 a year, starts new employers at 2.7 percent, and after 10 quarters bases the rate on the benefits charged to the account divided by its taxable payroll, between 0.1 and 5.4 percent for 2026 wages.
• Workers’ compensation, priced by class of work, so an office assignment and a warehouse assignment can carry different costs per dollar of wages.
• Benefits and paid leave, including sick leave where a state or city requires it.

Unemployment tax is front-loaded. Each worker’s wage base restarts every January 1, and a new hire starts a fresh one. Illustrative example: at $18 an hour and 40 hours a week, a worker passes $7,000 in the tenth week, so at the 0.6 percent federal rate and Florida’s 2.7 percent starting rate each early hour carries 3.3 percent of wages, about 59 cents, and each later hour none: about 11 cents an hour over a full year. An account staffed with a new hire every eight weeks pays it on every hour, so one firm-wide average undercharges that account. In Florida the rate also looks back at benefits charged, so an assignment that ends with no next one can surface in a later year’s burden. The payroll provider or the firm’s CPA confirms the firm’s own rates.

Is the markup covering burden at each client’s bill rate?

The check is one row per client, or per job title where assignments differ, built from the payroll register, the invoice register, the workers’ compensation policy and the state rate notice. The target comes from the firm’s own books: overhead plus the profit the owner wants, both as shares of revenue. Illustrative example: a hypothetical firm with $6 million of revenue and $1.08 million of overhead (18 percent), including the interest on its payroll float, whose owner wants 5 percent, needs a 23 percent gross margin on average, a markup of about 49.4 percent at a 15 percent burden. Each row holds:

• Pay rate, bill rate and markup, as loaded in payroll and billing.
• The workers’ compensation class for the work actually done.
• Unemployment tax applied the way the account runs: long assignments, or a stream of new people.
• Benefits, then burdened cost, gross profit and gross margin per hour.
• Last quarter’s billed hours, and the bill rate that reaches the target.

Illustrative example: two clients at the same 45 percent markup, with hypothetical workers’ compensation and benefit rates. Client A’s office assignments pay $22 an hour and bill $31.90. Its workers stay all year, so at the rates above unemployment tax averages about 0.5 percent of wages; with 7.65 percent payroll taxes, 0.6 percent for workers’ compensation and 1.5 percent for benefits, burden is 10.25 percent and gross profit about $7.65 an hour, a margin of about 24.0 percent. Client B’s warehouse assignments pay $18 and bill $26.10. A new hire every few weeks puts the 3.3 percent unemployment tax on every hour; with the same payroll taxes and benefits and 4 percent for workers’ compensation, burden is 16.45 percent, leaving about $5.14, about 19.7 percent. To reach 23 percent, Client B needs a markup of about 51.2 percent, a bill rate of about $27.22: one conversation with one client, priced from its own row.

Is overtime billed at time and a half, or only paid at it?

Federal law sets the pay side. Under 29 U.S.C. 207(a)(1), hours over forty in a workweek are paid at “not less than one and one-half times the regular rate,” and IRS Publication 15 notes that overtime compensation is still generally subject to Social Security and Medicare tax, so the premium carries burden too. This is a plain reading of the rules, not legal advice; how they apply to a worker or an agreement is for the firm’s employment attorney.

Some overtime shows on no single client’s timesheet. 29 CFR 778.103 says the employer “must total all the hours worked by the employee for him in that workweek (even though two or more unrelated job assignments may have been performed).” Illustrative example: 30 hours at one client and 20 at another, at $20 pay, is 10 hours of overtime, $100 of premium plus burden, on two invoices that each stay under 40 hours. Under 778.104 the Act “does not permit averaging of hours over 2 or more weeks,” 778.115 sets a weighted-average regular rate when the pay rates differ, and 778.207(b) puts night shift differentials in that rate. California’s Department of Industrial Relations also describes daily overtime past eight hours in a workday, with alternative workweek schedules that change how it is computed.

The billing side is whatever the client agreement says. With $20 pay, a $30 bill rate and the 15 percent burden, an overtime hour costs the firm $34.50. What it earns depends on the wording:

• One and one-half times the bill rate, $45.00: $10.50 of gross profit, the straight-time margin of 23.3 percent.
• The bill rate plus the premium and its burden, $41.50: $7.00, the straight-time dollars.
• The bill rate plus the premium at cost, $40.00: $5.50.
• The straight-time bill rate, $30.00: a loss of $4.50 on every overtime hour.

Each week, from the payroll register: overtime hours paid against overtime hours billed, by client; every worker with hours at two clients in one workweek; every California day over eight hours. For each, either the agreement covers it, the schedule changes, or the firm carries it on purpose and writes that down.

How to raise bill rates when pay rates or minimum wages go up

Florida’s constitution moved the state minimum wage from $14.00 to $15.00 an hour on September 30, 2026. From September 30, 2027, it is recalculated each year by inflation in the consumer price index for urban wage earners and clerical workers, with each new rate taking effect the following January 1, so the next change lands on January 1, 2028. The U.S. Department of Labor’s state table puts the federal floor at $7.25 and notes that some local governments set rates above their state’s.

How the increase reaches the bill rate decides whether gross profit holds. Illustrative example: a worker at Florida’s old $14.00 minimum, billed at a 50 percent markup ($21.00) with a hypothetical 15 percent burden, earns the firm $4.90 an hour, 23.3 percent. At $15.00:

• Bill rate left at $21.00: gross profit falls to $3.75, about 17.9 percent.
• Wage increase and its burden passed through, $22.15: gross profit stays at $4.90, about 22.1 percent.
• Markup applied to the new pay rate, $22.50: gross profit of $5.25, still 23.3 percent.

The federal government writes the second option into its own service contracts: FAR 52.222-43 passes through wage and fringe-benefit increases required by a new wage determination “and the accompanying increases or decreases in social security and unemployment taxes and workers’ compensation insurance, but shall not otherwise include any amount for general and administrative costs, overhead, or profit.” A private agreement can say either, as long as it says one in writing. One owner keeps the calendar: minimum wage steps, the January 1 wage-base reset, the workers’ compensation renewal and the state rate notice, which Florida mails in mid-December. As soon as each change is known, and well before it takes effect, that owner lists the assignments it moves and writes to each client with the old and new pay and bill rates and the clause; on the date, payroll, billing and the rate card in the client’s VMS change together, and the first payroll is matched to the first invoice. The legal reading of any clause belongs to the firm’s attorney.

What IRS figures show for employment services, and why they are not a target

The closest IRS figures come from Statistics of Income. Its Table 5.1 for tax year 2022, published in September 2025, shows 22,675 returns of active corporations under Employment services, estimated from a sample, with about $307.7 billion of business receipts. Cost of goods sold was about 50 percent of business receipts, salaries and wages deducted outside it another 26.5 percent, and total receipts less total deductions about 4.3 percent of total receipts. Read as a target, those figures mislead:

• One code, four businesses. IRS code 561300 covers what 13 CFR 121.201 lists as four industries: employment placement agencies, executive search services, temporary help services and professional employer organizations. Kelly Services’ 10-K notes that permanent placement revenue has higher gross profit “due to very low direct costs of services.”
• The same wages, different lines. IRS Publication 16 counts the direct labor of providing services in cost of goods sold and excludes those amounts from salaries and wages, so one firm’s temporary payroll can sit on either line, and the 50 percent is not a staffing gross margin.
• Old and blended. Florida’s minimum wage alone went from $11.00 at the end of 2022 to $15.00 in 2026, and the table averages corporations of every size, profitable or not.

Large public firms differ from each other too: for 2025, Kelly Services reported a gross profit rate of 20.1 percent and Kforce a Flex gross profit margin of 25.8 percent. Neither is a benchmark for a small firm’s mix of clients, states and classes of work. The target that counts is the firm’s own, built in the per-client section above.

When repricing is not the fix, and where the Review fits

A higher markup does not reach margin that leaks after the rate is set: approved hours never invoiced, overtime billed at straight time, a raise loaded in payroll and not in billing, a client paying weeks past terms. The markup itself stays the owner’s pricing decision, and a client that will not pay a rate covering its burden is a decision about the account.

For a staffing firm at $1 million a year and up, the Revenue Review counts this under the Payment → Margin hand-off. From read-only exports of payroll, invoices, rate cards and agreements, the workers’ compensation policy and the state rate notice, it rebuilds burdened cost and gross margin per client, overtime paid against overtime billed, workweeks split across clients, and rate changes that reached payroll but not the invoice, and ends in a written report the firm keeps, with a monthly dollar figure on each gap. It sets no bill rates, contacts no client, candidate or contractor, and gives no legal or tax advice. It takes two weeks.

The per-client rows above take an afternoon with a payroll register and the rate cards, and if every row already clears the target, that is the whole job. If not, the next step is a free 20-minute call, where we say whether the Review is worth it for this firm, including when it is not.