Pay Raise Pass-Through

Why this comes up

A worker's pay rate rarely stays fixed for the life of an assignment, a raise, a cost-of-living adjustment, or a state minimum-wage change all push loaded cost up. If the bill rate doesn't move with it, margin quietly erodes every pay period. This engine computes the bill rate increase needed to pass the raise through, in either of two ways.

How we calculated this

New Loaded Cost = New Pay Rate x (1 + Burden %)
Preserve margin mode: solve for the bill rate that holds your current margin percentage constant
Preserve contribution dollars mode: solve for the bill rate that holds current per-hour contribution dollars constant

Worked example, preserve-margin mode: pay goes from $25/hr to $27/hr, 18% burden, current bill rate $43.38/hr, 2% program fee.

New Loaded Cost = 27 x 1.18 = $31.86/hr
Implied current margin = (43.38 - 29.50 - 43.38 x 0.02) / 43.38 = 30.0%
New Bill Rate = 31.86 / (1 - 0.30 - 0.02) = $46.85/hr
Bill Rate Increase = 46.85 - 43.38 = $3.47/hr
Margin if unchanged = (43.38 - 31.86 - 43.38 x 0.02) / 43.38 = 24.6%

What this means

• Preserve-margin mode keeps your percentage margin constant, which means the dollar amount of margin per hour actually grows as pay increases. Preserve-contribution-dollars mode does the opposite: it holds the per-hour dollar margin flat, which means your margin percentage actually shrinks as pay grows.
• If the bill rate isn't renegotiated at all, margin drops to the "margin if unchanged" figure, in the example, from 30% to 24.6%, a meaningful erosion from a single raise.
• The size of the required bill-rate increase isn't just the raise amount times a multiplier; the program fee and burden both scale with the new, higher numbers too.

Common mistakes

• Passing through only the raw pay increase to the bill rate, without also accounting for burden scaling up on the higher pay and the program fee applying to the new, higher billings.
• Not renegotiating the bill rate at all after a raise, silently eroding margin every pay period going forward.
• Assuming preserve-margin and preserve-contribution-dollars produce the same bill rate; they diverge, and which one you should use depends on whether you're protecting your margin percentage or your per-hour profit.

Frequently asked questions

Which mode should I use?

Preserve margin if you want your percentage return on this placement to stay constant as pay grows. Preserve contribution dollars if a flat per-hour profit matters more to you than the percentage, common when you're managing to a dollar target rather than a margin target.

What if the client won't accept a bill-rate increase?

Then margin erodes to the "margin if unchanged" figure; know that number before the conversation, so you understand exactly what you're accepting if the client says no.

Does this account for a minimum-wage-driven raise differently than a merit raise?

No, the math is the same regardless of why pay increased. What differs is how much leverage you have in the bill-rate conversation, a state-mandated wage floor affecting every agency equally is often easier to pass through than a one-off merit increase.

Limitations

Assumes the same program fee rate applies before and after the raise; if the fee structure itself changes, recompute with the new rate.

Next decision

• See the full repricing conversation this raise likely triggers with the client

Learn more

What Goes Into Staffing Labor Burden? — how burden scales with pay rate, and why it's not a flat dollar add.