Agency profit margins (was Re: The saga ended (or is it continuing?))

Subject: Agency profit margins (was Re: The saga ended (or is it continuing?))
From: "Richard G. Combs" <richard -dot- combs -at- voyanttech -dot- com>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Wed, 23 Jul 2003 16:43:38 -0600

In response to a question about agency margins, Jeanne A. E. DeVoto wrote:

> Yes, the margin will vary depending on whether you're 1099 or W-2, because
> the agency's payroll tax liability depends on this. (If you're 1099, they
> pay, I believe, nothing, so their margin after their accounting costs is
> pure profit. But if you're W-2, they pay half of Social Security, plus
> unemployment, disability, possibly other things, and all this has to come
> out of their percentage.)

Mostly true. But the margin on 1099s is not all profit. Believe me, I've
done this.

Along with some variable costs of maintaining the business (including the
additional accounting and recordkeeping), the margin has to cover worker's
compensation and other insurance. Some agency clients have additional
requirements that add significant costs, such as employee/contractor theft
insurance, criminal background checks, etc.

The worker's comp insurance premium depends directly on the dollar amount of
wage and 1099 payments by the agency, and it's not cheap.

If it were easy to make money running a business, 8 out of 10 wouldn't fail.


Richard G. Combs
Senior Technical Writer
Voyant Technologies, Inc.
richardDOTcombs AT voyanttechDOTcom
rgcombs AT freeDASHmarketDOTnet


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