TL;DR

Spread is the dollar difference between the bill rate charged to a client and the pay rate paid to a temporary or contract worker, calculated per hour. It represents the gross revenue available to the staffing agency before deducting burden costs (employer taxes and insurance). Spread is not gross profit — the agency must subtract the full burden from the spread to arrive at true gross margin per hour. On a $30 bill rate with a $20 pay rate, the spread is $10/hr; after deducting typical burden of $4–5/hr, gross profit is closer to $5–6/hr.

Key Takeaways

• Spread = bill rate minus pay rate; gross margin = spread minus burden; agencies that confuse spread with profit consistently underprice their services
• Staffing Industry Analysts reports that temporary staffing gross margins (after burden) average around 25% of bill rate across the US industry — a $30 bill rate yields roughly $7.50 in gross margin, not the full $10 spread
• Spread is expressed in dollars per hour (or per day) rather than as a percentage; markup is the percentage equivalent used to set pricing; gross margin percentage is the ratio used to benchmark profitability against revenue
• High-volume, long-duration placements with stable billing hours generate more total spread dollars even at thinner percentage margins than short, high-markup placements that run for only a few weeks

FAQ

Q: What is the spread in staffing and why does it matter? A: Spread is the hourly dollar difference between what a client pays the agency (bill rate) and what the agency pays the worker (pay rate). It matters because it is the raw revenue pool that must cover the agency's cost of employing the worker — FICA, FUTA, SUTA, workers' compensation, general liability — before any overhead or profit is counted. A recruiter celebrating a "big spread" placement should immediately subtract burden costs to see what the actual gross profit per hour is.

Q: How is spread different from gross margin? A: Spread is the pre-burden dollar difference between bill rate and pay rate. Gross margin is what remains after subtracting the burden (employer payroll costs) from the spread. For a worker paid $20/hr with a $30/hr bill rate, the spread is $10/hr. If burden costs are $4.50/hr, gross margin is $5.50/hr, and gross margin percentage is $5.50 / $30 = 18.3%. Spread is an intermediate figure; gross margin is what the agency actually keeps before operating expenses.

Q: What affects spread size in contract staffing? A: Several factors: the role's pay rate (higher-pay roles generate larger absolute spreads even at lower markup percentages), workers' compensation classification (a high-risk manufacturing role carries a larger comp premium, compressing net margin relative to spread), contract duration (the burden calculation is the same regardless — longer contracts just multiply the spread over more hours), and VMS fee deductions if the client uses a managed programme (VMS fees of 2–4% are deducted from the bill rate before the spread is calculated).

Why Spread Is the Wrong Metric for Profitability

Spread is the most intuitive measure of placement economics — it's what you see at a glance when you compare the bill rate and pay rate in your ATS. But using spread as the primary profitability metric leads to systematic misjudgements about which placements and which desks are actually making money. A recruiter running a warehouse desk with a $12/hr spread on every placement looks more productive than a colleague placing IT contractors with an $8/hr spread — until you factor in burden. The warehouse role carries workers' compensation at 6%, SUTA at 3%, and other burden totalling $5.40/hr, leaving $6.60/hr in gross margin. The IT placement carries burden of $3.20/hr, leaving $4.80/hr in gross margin. The warehouse spread looks better; the economics are roughly comparable per hour.

The danger is more acute in high-hazard industries. Burden can consume $4–$8 of every $10 spread in roles classified under high workers' comp codes — roofing, construction, oil field services. An agency pricing these roles with a flat 40% markup across all role types will find its high-risk placements generating near-zero or negative gross margin after burden, while its office placements carry the firm. Tracking spread is useful for pricing conversations; tracking gross margin by placement, by client, and by desk is essential for managing a profitable business.

How to Calculate Spread

The arithmetic is simple: spread = bill rate minus pay rate. A worker placed at $22/hr with a $35/hr bill rate has a $13/hr spread. But the value of calculating spread explicitly — rather than just looking at the markup percentage — is that it gives you a dollar figure to compare against actual burden in dollars. Walk through the burden deduction from the $13 spread: FICA on $22 = $1.68, FUTA prorated = $0.13, SUTA at 4% = $0.88, workers' comp at 5% (light industrial) = $1.10, general liability = $0.26 — total burden $4.05/hr. Gross profit per hour = $13.00 minus $4.05 = $8.95. Gross margin percentage = $8.95 / $35 = 25.6%.

Now change one variable: the workers' comp code reclassifies to a higher-hazard rate of 12%. Burden becomes $1.68 + $0.13 + $0.88 + $2.64 + $0.26 = $5.59/hr. Gross profit drops to $7.41/hr and gross margin falls to 21.2%. The spread hasn't changed — it's still $13/hr — but the placement is materially less profitable. This is why running spread calculations alongside full burden models is non-negotiable for any agency doing volume in industrial or construction staffing.

Spread vs Markup vs Gross Margin

These three metrics describe placement economics at three different moments in the pricing and reporting cycle. Markup is used at the quoting stage — it's the percentage above pay rate that translates to a bill rate. Spread is the resulting dollar difference between bill rate and pay rate — a fast reality check on whether a placement has enough room to cover burden. Gross margin is the post-burden profitability measure used in P&L reporting and benchmarking against SIA data. Each has its place; none should be used as a substitute for the others.

A common confusion: markup percentage and gross margin percentage move in different directions relative to the same numbers. A 50% markup on a $20 pay rate gives a $30 bill rate. Gross margin before burden is ($30 minus $20) / $30 = 33.3%. After deducting $4.50/hr in burden, gross margin after burden is ($30 minus $20 minus $4.50) / $30 = 18.3%. The 50% markup looks strong; the 18.3% gross margin is at the thin end of industry norms for light industrial staffing.

Spread in Practice

A branch manager at a staffing firm runs a weekly P&L review covering three account managers. The first runs an IT contract desk: 8 contractors averaging $80/hr bill rate and $62/hr pay rate — a $18/hr spread. The second runs a light industrial desk: 45 workers at $28/hr bill rate and $18/hr pay rate — a $10/hr spread. The third runs a healthcare support desk: 12 workers at $42/hr bill rate and $30/hr pay rate — a $12/hr spread.

Sorting by spread dollars per week: light industrial generates $18,000/week in spread (45 x 40 x $10), IT generates $5,760/week ($18 x 8 x 40), healthcare generates $5,760/week. After running the actual gross margin: IT desk earns $13.50/hr x 320 hrs = $4,320/week; light industrial earns $6.80/hr x 1,800 hrs = $12,240/week; healthcare earns $9.20/hr x 480 hrs = $4,416/week. The light industrial desk drives the branch's gross profit despite its lower spread per hour. Lesson: sort P&L by gross margin dollars per week, not spread per hour, to allocate recruiter resource and management attention correctly.