Re: Grim numbers, just grim

Subject: Re: Grim numbers, just grim
From: Andrew Plato <intrepid_es -at- yahoo -dot- com>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Mon, 18 Feb 2002 17:37:19 -0800 (PST)

"Elna Tymes" wrote...

> I just love it when Andrew Plato engages in hyperbole. It's so easy to
> shoot down his hypotheses. Wayne was partially right in his response,
> but as a California employer, let me tell you what it's really like:

There is no hyperbole in my post. I am talking about marginable rates. You
said it yourself at the end of your post - that agencies have to charge 30% to
break even. Which I believe is exactly what I said. So why the attack Elna?

Wayne was correct that Social Security is matched. I was incorrect when I said

And according to your own post, California has more taxes than Oregon. Thus
resulting in exactly what I said, that agencies have to charge a bigger margin
in California. Hence, where is the hyperbole in my post?

California has more local taxes, more income taxes, and various other taxes.
Not to mention the sea of paper work, fees, charges, and other nonsense just
for the right to do business in California. I have employed people in
California as well Elna. Just to be registered in California to do business
cost something like $500. And there are disability and other taxes levied on
companies that are not national taxes.

> 1. Federal withholding tax is basically the withheld portion of your
> federal income tax. It is *never* matched by the employer. And it's the
> same from state to state.
> 2. California has a state income tax, and that is withheld too. However
> it's a small percentage of what's withheld in federal income tax. Many
> states have different percentages, and some (including Oregon) have no
> state income tax.

Oregon absolutely has an income tax. It averages to about 9%. We don't have
SALES tax in Oregon. We also don't have the myriad of fees associated with
doing business in the state. Its $43 to incorporate in Oregon and we have a
city of Beaverton fee of $50. The only tax we have that you don't have is a
Tri-Met tax for our trains that run in Portland. Its .7% and its employer
matched with employee pay as well.

> 3. Social Security (also known as FICA) is also withheld, and the
> amount withheld is matched by the employer. I think the percentage is
> somewhere around 7.65%, but it's the same across all states. So Oregon
> has no advantage over California - or any other state - in this area.

Its actually closer to 6.2% according to the tax tables in my copy of

> In sum, the only difference in *payroll* taxes between California and
> Oregon is the state income tax, and that comes out of the employee's
> pocket.

California has more taxes and higher cost of doing business thus requiring
larger margins to do business:

California Has:
Corporate minimum tax: $800
Incorporation fees: $500
Employment Training Tax: ????
State Sales Tax (this matters BIG if you sell equipment, like I do)
Permit fees: ??? (but I know they are more than Oregon)

Corporate tax - no minimum
Incorporate fee: $43
TriMet Tax: 0.7% (employer matched)
No sales tax
Permit Fee: $50 City of Beaverton (more in Multanoma County)

I've done the math Elna, it costs (on average) about 5% more to employ people
in California than in Oregon. I have employed people in 6 states: Oregon,
Washington, California, Texas, Arizona, Nevada. California is the most costly.
The cheapest is Nevada. Oregon is about on par with Washington and Arizona.

With overhead (office, insurance, etc.) added all together, it takes about 25%
margin in Oregon and about 30% in California. Thus an agency charging a 50%
margin would not be particularly weird. That would ensure a 25% to 20% profit
margin, which is not terribly high.

> Additionally, there can be other factors to business costs: utilities,
> insurance, etc. Only after you get through the actual costs can you
> figure in an agency overhead so that the agency makes a profit. It used
> to be that the agency could figure a 30% markup, minimum, and break
> even. Nowadays, nobody's talking to agencies because it's so much
> cheaper to go directly to potential employees.

Yes, it is cheaper. It is also more risky. Most small independent consultants
do not have the business sense to handle the legal and financial complexities
of contracting. Thus, they get themselves into trouble causing the contracting
firm problems. This why many larger firms frown upon using independent
contractors or mandate that they be run through an agency. The legal risk is
too high to contract people directly.

It is not impossible to get work as an independent, if you have your ducks
lined up in a row. But some companies get ookie about working with independents
because its riskier to them.

I think the main reason companies aren't flocking to agencies is because they
don't have to. I get 10 resumes a week for writers right now and I don't even
have a job posted. Its an employer's market these days. There is an intense
amount of competition for positions, and that doesn't not bode well for most

Andrew Plato

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