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Not sure what David's purpose is in continuing this thread, but that
"complete picture" is just a pretty standard chart of accounts. Once these
are set up, and it can be done in QuickBooks, Peachtree and other PC based
packages in a few hours if you know what you're doing, they work for all
transactions and the actual work is very similar to entering data into
database fields or spreadsheet cells. The accounting software does the work
after that. That's what they are for. It is NOT rocket science. In addition,
using his own margin percentage for a 1099 contractor, 35% of $75/hour is
$26.25/hour to the agency for every hour the contractor works.
Let me also say that I have nothing against agencies. Over the last decade
about half my work has come through agencies, and I am glad they do all that
"stuff" that would literally drive me crazy. However, none of us contractors
should pretend that our welfare is at the top of their priority list, or
that they don't make a very nice gross margin/markup from our
Finally, if David, or anyone else, wants the last word on this thread,
they've got it as far as I'm concerned.
Happy 4th to all of you,
Tech Doc-It, Inc.
wallyg99 -at- home -dot- net
Wally Glassett wrote:
>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