'Why is my bill rate so much higher than my pay?'

(Credit: flickr user winifredxoxo)

Dear Evil HR Lady,

I started working for this consulting company in October 2011. They offered me $50/hour, and I did not negotiate very hard and accepted the offer. I started working at the client location and found out the client has open positions for the same job (several open positions) and they are offering $80-$90/hour. So my job is getting paid the higher rate, but my consulting company is not paying me anywhere close to that. I feel shortchanged. How do you think I should approach this scenario?

I am going to assume with a $50-an-hour payrate (that works out to $102,000 a year) you aren't flipping burgers or helping companies catch up on their filing backlog. You're a consultant, and you're not doing too badly. Many people would be thrilled to pull in that kind of salary.

Of course, $80-$90 an hour ($163,200 to $183,600) is much better. I do not deny that at all. But, I'm guessing that posted rate is what the client is willing to pay in total for a consultant, not what they are willing to calculate your actual paycheck. Chances are you are being paid well within the same range as the same people who will take these jobs posted at $80-$90 per hour.

Why? Because you're not an independent consultant. You're an employee of a consulting company. In addition to the $50 per hour that you take home, they have to pay taxes on you (that you don't see), as well as any benefits and overhead costs. Plus, the company most likely wants to make a profit. That's where the $80-$90 an hour billing rate comes in.

If you were an independent contractor, you'd make that lovely higher salary, but you'd have to pay self-employment tax, cover all your own benefits, and be responsible for selling your own services and finding your own contracts. Clearly this suits some people better than others.

Now, if that higher rate is actually what other people doing in the job get paid and not what a consulting firm is making, then you are being terribly underpaid. In that case, you take a copy of the job posting to your boss and say, "Ummm, what's up with this? Why is my salary so much lower?"

You may find out that you are just a terrible negotiator, but more likely you're newer in the profession, have fewer contacts, the jobs are similar but the new posted ones have specific and unique skills that you lack, or there's some other reason. If it's just that you're a terrible negotiator, you can always ask that your salary be brought up. You may or may not win this one, but it's most likely that that dollar amount does not reflect anyone's actual salary.