Pay rate and bill rate describe two different sides of contractor work. The pay rate is the hourly worker-cost rate you use. The bill rate is the hourly amount charged to the client. Their difference is useful, but it is not automatically your profit.
The figures below are illustrative only, not TymTrack prices, recommended contractor rates or tax advice. Use comparable ex-GST figures and check your own costs with your accountant.
Work out the hourly spread
Suppose a contractor’s pay rate is $60 per hour and the client bill rate is $90 per hour, both expressed on the same ex-GST basis. The hourly spread is:
Hourly spread = bill rate − pay rate = $90 − $60 = $30
For 40 billable hours, client revenue is $3,600, the pay-rate cost is $2,400, and the simple spread is $1,200. This only compares those two rates. It does not deduct other employment, contractor-management or business expenses.
Margin is not markup
Margin uses revenue as its denominator. Markup uses cost. Mixing the two can make a quote look healthier than it is.
- Simple gross margin = ($90 − $60) ÷ $90 × 100 = 33.3%.
- Markup on the pay-rate cost = ($90 − $60) ÷ $60 × 100 = 50%.
Both describe the same $30 spread, but they answer different questions. A 50% markup does not mean half of the client’s payment is margin. Be explicit about which percentage a report or pricing discussion uses.
Add the costs the spread leaves out
Your actual cost may include superannuation where applicable, insurance, payroll administration, leave obligations, recruitment effort, equipment, non-billable time and overhead. Which costs apply depends on the arrangement and your jurisdiction. Do not infer an employment or tax classification from a field labelled “contractor”.
For example, if additional attributable costs were $10 per hour, the illustrative total cost would become $70. At a $90 bill rate, the contribution would be $20 per hour, or 22.2% of revenue, before any remaining costs. Confirm what belongs in your cost model instead of treating the original 33.3% spread as net profit.
Compare rates on a consistent basis
Keep tax treatment consistent. Mixing an inc-GST client rate with an ex-GST worker-cost rate distorts the comparison. GST collected is not the same thing as operating margin. This guide does not determine whether a particular contractor or transaction must charge GST.
Also distinguish billable hours from paid or logged hours. Forty paid hours and thirty billable hours do not produce the same result as forty hours on both sides. Rate comparisons are most useful when paired with the correct hours and period.
Apply it to your timesheet workflow
In TymTrack, assignments hold separate pay and bill rates. Contractors log time against clients and tasks, managers review their team’s weeks, and admins prepare client invoices from billable hours. TymTrack does not calculate statutory payroll or pay contractors.
Check rates before submission and review the task allocation before approval. Keep approved-only billing as your default unless your admin intentionally includes pending-approval hours. A rate field does not remove the need to validate the work, costs or contract terms.
See features, pricing and our contractor approval checklist. Start with a clear rate model, then make sure your hours and approval records use the same assumptions.