A GS-13 step 1 employee earned a base salary of $90,025 in 2025, according to the U.S. Office of Personnel Management. A cleared contractor filling that same seat bills the government far more than $90,025 for a year of that person’s labor. The gap is not the company pocketing the spread. Most of it is the wrap.

The wrap rate decides what a defense or intelligence contractor can actually offer you, because it is the loaded hourly figure the company charges for your labor category: your salary plus every cost stacked on top before a cent of profit. Read an offer letter without it and the number looks arbitrary. Read it with the wrap in mind and the number has a structure you can question.

What is a wrap rate?

A wrap rate, also called a fully burdened or loaded rate, is your direct hourly labor plus every indirect cost a contractor allocates to your work plus its fee. The Federal Acquisition Regulation never uses the phrase. It does define each layer, and it defines the whole: total contract cost equals direct costs plus indirect costs.

The phrase is industry shorthand, not a legal term. Search the FAR and you will not find it. What you will find is the structure underneath. FAR 31.201-1 defines the total cost of a contract as the sum of the direct and indirect costs allocable to the work, plus any allocable cost of money, less credits. Strip a contractor’s price for your hour down to its parts and it is three things stacked: the labor it pays you, the burden it spreads across all of its contracts, and the profit the government allows it to keep.

When a recruiter quotes a bill rate well above what your salary works out to hourly, the difference is not waste and it is not all margin. It is the wrap.

What actually goes into the wrap?

Four layers sit on top of your base pay: fringe benefits, overhead, general and administrative expense, and fee. The first three are indirect cost pools the contractor spreads across every contract it runs. Fee is capped profit. Each has a specific home in the regulation.

Direct labor is the one cost with your name on it. Under FAR 31.202, a direct cost is identified specifically with one contract and charged straight to it, which is exactly what your billable hours are. Everything above that line is indirect. FAR 31.203 requires the contractor to accumulate indirect costs in logical cost groupings and allocate them across contracts, because no single project caused them.

Fringe covers the benefits attached to employing you: health coverage, retirement contributions, paid leave, and the employer share of payroll taxes. Overhead covers the cost of running the program or the site you work on, the supervision, facilities, and equipment that support many people at once. G&A is the company itself: executive salaries, accounting, contracts, business development, the corporate functions every contract shares.

This is why the same labor category pays differently from one company to the next. A lean small business may carry a lighter overhead and G&A load; a large prime with layers of program management and corporate staff may carry a heavier one. Whether that structure helps or hurts your offer is one of the real questions behind working for a large or a small contractor.

Why won’t a contractor just tell you its multiplier?

Because there is no single multiplier to tell. The burden a company applies shifts with the contract type, the work site, and the size of its cost pools that year. No regulation sets a standard wrap number. Anyone quoting you a fixed figure is describing one shop on one contract, not a rule.

Contract type moves the number. On a firm-fixed-price job the wrap is baked into a single price and you never see it. On time-and-materials work it becomes a negotiated ceiling rate per labor category. On cost-plus-fixed-fee work it is provisional during the year and trued up later, which the next section covers. Work site moves it too: a badge-in seat inside a government facility spares the contractor much of the facility overhead it would carry at its own site, so the same person can sit under a different wrap depending on the desk.

That is why an honest recruiter will not hand you a clean multiple. The math is real, but it is theirs, and it is specific to the award you would be booked to.

What limits how high the wrap can go?

Three legal limits. Statutory fee ceilings cap profit on cost-plus-fixed-fee work at 15, 10, or 6 percent. A benchmark compensation cap makes pay above a set figure unreimbursable. And every cost has to pass five allowability tests before it can sit in the wrap at all.

Start with fee. FAR 15.404-4 holds that on a cost-plus-fixed-fee contract the fee cannot exceed 15 percent of estimated cost for experimental, developmental, or research work, or 10 percent for other cost-plus-fixed-fee work, with a separate 6 percent limit on architect-engineer design based on estimated construction cost. Those ceilings trace to statute at 10 U.S.C. 3322(b) and 41 U.S.C. 3905. The top layer of the wrap is legally boxed in; a contractor cannot mark you up without limit.

Next, compensation. FAR 31.205-6(p) makes the cost of employee compensation above a benchmark unallowable for costs incurred on or after June 24, 2014. The benchmark is set by the Office of Federal Procurement Policy. Its base was $487,000 for contractor fiscal year 2014 under section 702 of the Bipartisan Budget Act of 2013, escalated each year by the Employment Cost Index. Industry advisories put the escalated figure at roughly $646,000 for fiscal 2024, a number to treat as an estimate rather than a current government notice. The cap bites at executive pay, not a typical technical salary, but it sets the ceiling of the entire pyramid your rate sits inside.

Last, allowability. FAR 31.201-2 lets a cost into a government contract only if it passes all five factors: reasonableness, allocability, compliance with Cost Accounting Standards or GAAP, the terms of the contract, and the limits in Subpart 31.2. A cost that fails any one is unallowable and cannot be billed, so it cannot pad your wrap. Budget pressure tightens all of this further, a reality cleared professionals have watched play out in cleared salaries against budget cuts.

How is the wrap rate set during the year?

In two stages. During the year the contractor bills at provisional rates that a contracting officer or auditor approves to approximate the final numbers. After the fiscal year closes, the rates are audited and trued up. The contractor files its final proposal within six months of year-end.

The wrap you are hired under is an estimate, but an approved one. FAR 42.704 directs the contracting officer or auditor to set billing rates from recent audits, prior experience, or similar reliable data, as close as possible to the final indirect rates anticipated for the year. Nobody invents the number at a whiteboard.

After the year ends, the estimate is settled. FAR 42.705 establishes final indirect cost rates through either a contracting-officer determination or an auditor determination. For defense work that auditor is usually the Defense Contract Audit Agency, which reviews the contractor’s incurred-cost submission and tests the pools that make up the wrap. FAR 52.216-7 requires the contractor to submit an adequate final indirect cost rate proposal within six months of the end of each fiscal year, and until those final rates are set the government keeps reimbursing at the billing rates.

For you, the practical effect is that the rate is sticky inside a period. Your labor category and its ceiling are written into the award, so a large mid-year jump in your pay is hard to fit under a wrap that is already set and being audited.

What does the wrap rate mean for your offer?

Your room to move is on the direct-labor layer, the one part of the wrap tied to you personally. Fringe, overhead, G&A, and fee follow the company and the contract, not your resume. Knowing which layer is negotiable, and which is not, separates a realistic counter from a dead one.

Counter on base salary, and counter inside the labor category’s ceiling. Ask the recruiter which contract type your seat sits on and whether that category carries a ceiling rate, because the answer tells you how much air is left above your number. Push on the burden layers and you are arguing with the company’s accounting system, which will not move for one hire.

Give yourself a public benchmark. The 2025 General Schedule base scale runs from $90,025 at GS-13 step 1 to $102,029 at step 5, $117,034 at step 10, and $162,672 at GS-15 step 10, a government-published read on what mid-to-senior cleared labor is worth before any wrap. Cleared roles are often priced against these grade equivalents, which is part of the wider difference between contractor and direct federal jobs. From there the tactical work is ordinary salary negotiation: what to ask for, how to counter an offer, and how to trade salary against benefits when the base is capped.

Before you counter a 2026 offer, ask two questions: which contract type your labor category sits on, and what the ceiling rate is for that category. The answers tell you whether the number in front of you has room, or is already pressed against a wall the regulation built.

Frequently Asked Questions

Does the FAR set a standard wrap-rate multiplier?

No. The FAR defines the components of a contractor’s price, direct labor, indirect cost pools, and fee, and it caps some of them, but it never sets a single multiplier. Any fixed number, such as a flat 2x, describes one company’s cost structure on one contract rather than a rule you can expect to hold everywhere.

Is the wrap rate the same as the bill rate?

For your purposes, effectively yes. The bill rate is the loaded hourly figure a contractor charges the government for your labor category: your direct pay plus the allocated indirect pools plus fee. Your salary is only the bottom layer of it.

Can a contractor pay me more than the government GS scale?

Yes. The General Schedule is a reference point, not a cap on contractor pay. The real ceiling is the benchmark compensation limit in FAR 31.205-6(p), which caps only the reimbursable amount at high compensation levels and rarely affects a typical cleared technical salary.

What is the compensation cap, and does it touch my paycheck?

It is a statutory limit on how much employee compensation the government will reimburse. The base was $487,000 for contractor fiscal year 2014 under the Bipartisan Budget Act, escalated each year by the Employment Cost Index. Industry advisories reported roughly $646,000 for fiscal 2024, which you should treat as an estimate rather than a current government figure. It constrains executive pay, not most cleared roles.

Why did my pay offer drop after a contract recompete?

When a contract is rebid, companies often sharpen their rates to win, which compresses the wrap and the salaries inside it. That is a pricing decision on the new award, not a verdict on your work, and it is a common pattern in pay cuts, layoffs, and contract recompetes.