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>For a 1099 contractor the agency keeps 100% of their
>"cut" or margin. In the example given, $50/hr to the contractor and $25
>the agency, over a 6 month, 1000 hour contract that is $25,000 to the
>who, after finding and placing you, normally does very little beyond
>processing timesheets and invoices two times a month and sending the
>contractors 1099 information to the IRS once a year. That is a lot of
>income for not much work.
1099 contractors often charge more than W-2 contractors because they
have to pay their own Worker's Comp, Self-Employment Tax (equivalent of
FICA), and promotional expenses. Margins on these workers are typically
in the 30%-35% range for the agency.
>If you are a W-2 contractor then FICA, income tax and other
>taken out of the contractors $50/hour. The agency does pay other taxes,
>certainly not all of them. Many agencies offer benefits to W-2
>but they are not what anyone would call competitive benefits like those
Wally is overlooking that a W-2 contractor making $50 an hour is
effectively making $53 to $55 an hour because of the employer portion
of FICA and Worker's Comp. Also regular, staff W-2 employees make $25 to
$35, FICA and Worker's Comp, plus they get more extensive benefits and
more job security. The extra money contractors get is a premium paid
precisely because they do not get benefits and they face unemployment
when the project is finished.
Wally's examples narrowly focus on one part of a typical agency's
reality, which is what has to be factored into the equation, if the
agency is to stay profitable (i.e., stay in business.) To give a more
complete picture of the expenses involved in running an agency, I've
appended a list of accounts from an actual operating budget.
Orr & Associates Corporation
Documentation and Training Services
Cost Of Sales
Documentation and Training
Employee &Contractor training