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So why are we paying 30%-50% of our cost to some "payroll" service/temp agency?

That 30-50% margin is primarily the sales premium you pay for not finding the opportunity on your own. Or put another way, it is the relationship/networking premium you pay for not having the relationship network or networking skills to uncover these gigs. If you are comfortable doing your own sales and marketing legwork, then hook up with P.A.C.E. (Professional Association of Contract Employees). Straight 5% (or minimum $100 per invoice) for competent back office payroll and benefits implementation. If you make heavy investments (say, $20K or more a year) into your training and support infrastructure however, their expense reimbursement structure might be a little constraining. At that level, you may want to consider just incorporating yourself.

I have no relationship with the P.A.C.E. folks; they were mentioned here on Slashdot and I checked them out because I run my own company and am always benchmarking ouselves against other companies.

The setups you should really get irked about are the "preferred vendor" firms. They demand 15% off the top for simply passing through them, even if you developed the opportunity on your own.

If you really dislike what the temp agencies are taking off your top line, then learn sales, networking, and management skills and wean yourself off of them. The only reason these agencies can charge you so much is because they are in such high demand. If 50% or more of the contracting population started to exclusively work their own networks, then these agencies would be a lot hungrier, and their take would drop.

P.A.C.E. http://www.pacepros.com/ will give you a W-2 so things like buying a house, and doing your taxes becomes much easier. Their fee is EXTREAMLY reasonable considering the services offere to contractors. They give you all the benefits of being a contractor, and an employee at the same time. Tell them Scott Skaife referred you....

My company PACE offers up to 25% in a combined IRA 401k program. The account is thru Schwab and I can purchase any stock that is available on the market. --DAMON

Use the rule of 1,000 A job paying 65k per year should pay $65 per hour as a contractor. See PACE and the contract employee's hanbook. --Damon

See it here. Then join PACE --Damon

I've been a contract employee for the past 5 years working for P.A.C.E. Check them out they are the best!!! --Damon

I've been contracting for the past 5 years as well. I've found it is better to be a contractor if you work for the right agency. Most agencies take between 25%-60% of your revenues for doing nothing but sending a bill out and writing you a check. Seriously take a look at PACE. P.A.C.E. stands for Professional Association of Contract Employees. PACE is a Virtual Corporate Back Office, Revenue & Expense Tracking, and the Best Benefits Package Available to ANY Contract Professional ANYWHERE in the USA. PACE also produces the contract employee's newsletter that has some valuable information for any contract employee. PACE bills the client for me and sends me the check. They do have a small 5% service fee, but it is well worth the benefits. PACE has also authored the The Contract Employee's Handbook. The handbook is a MUST read for anyone considering contracting. You might also check the PACE Agency Conversion Payroll Spreadsheet for more information. Be sure to tell them that Damon sent you ! --freak

I've been contracting for the past 5 years as well. I've found it is better to be a contractor if you work for the right agency. Most agencies take between 25%-60% of your revenues for doing nothing but sending a bill out and writing you a check. Seriously take a look at PACE. P.A.C.E. stands for Professional Association of Contract Employees. PACE is a Virtual Corporate Back Office, Revenue & Expense Tracking, and the Best Benefits Package Available to ANY Contract Professional ANYWHERE in the USA. PACE also produces the contract employee's newsletter that has some valuable information for any contract employee. PACE bills the client for me and sends me the check. They do have a small 5% service fee, but it is well worth the benefits. PACE has also authored the The Contract Employee's Handbook. The handbook is a MUST read for anyone considering contracting. You might also check the PACE Agency Conversion Payroll Spreadsheet for more information. Be sure to tell them that Damon sent you ! --freak

I've been contracting for the past 5 years as well. I've found it is better to be a contractor if you work for the right agency. Most agencies take between 25%-60% of your revenues for doing nothing but sending a bill out and writing you a check. Seriously take a look at PACE. P.A.C.E. stands for Professional Association of Contract Employees. PACE is a Virtual Corporate Back Office, Revenue & Expense Tracking, and the Best Benefits Package Available to ANY Contract Professional ANYWHERE in the USA. PACE also produces the contract employee's newsletter that has some valuable information for any contract employee. PACE bills the client for me and sends me the check. They do have a small 5% service fee, but it is well worth the benefits. PACE has also authored the The Contract Employee's Handbook. The handbook is a MUST read for anyone considering contracting. You might also check the PACE Agency Conversion Payroll Spreadsheet for more information. Be sure to tell them that Damon sent you ! --freak

You may also be interested to read my pages Market Yourself - Tips for High-Tech Consultants and GoingWare's Policy on Recruiters.

You may also be interested to read my pages Market Yourself - Tips for High-Tech Consultants and GoingWare's Policy on Recruiters.

Depending on the agreement you signed with the recruiter who got you the job, a pass-through agency may be a better bet than incorporating. Pass-throughs act as your employer for tax, invoicing and collections purposes. But they don't take as much as regular agencies do because you have to find your own projects. Like a partner in a law firm, you have the responsibility of bringing in business and controlling expenses in your "practice".

Benefits:
You can deduct the same kinds of expenses.
They bill the customer and collect the money.
They deduct for pension, healthcare and taxes.
At year end, taxes are as simple as a W-2.
If you're buying a house or car, you look like an employee with continuous work history, instead of having periods of unemployment between gigs.

Downsides:
They charge 5% off the top in addition to withholding taxes.
You have to get your own gigs, they don't find projects for you.

One example is Professional Association of Contract Employees (P.A.C.E.). There is some good info on their site about using pass-through agencies. Also check their sister site, the Contract Employees Handbook for info on dealing with recruiters and the games they play.

Fortunately, the same trend toward outsourcing that has placed many techies into a shotgun wedding with entrepreneurship has also created a web of resources they can use to cope. For starters, check out Janet Ruhl's Real Rates website. Also, those seeking a relatively painless (though pricey) back-office solution should check out Professional Association of Contract Employees (P.A.C.E.). And be sure to read the Contract Employees' Handbook by the same guy who runs P.A.C.E.

Check out PACE, they do a billing or contract programmers and have some great information on negotiating rates, getting gigs, etc. I'm not associated with them. I was just investigating a contract job with a company (no middlemen involved) and they came up as a billing option. They charge 5% for billing.

Hope this helps

Another approach is to become a statutory employee of a company who does your tax withholding and lets you participate in pre-tax benefit plans. You would get a W-2 at the end of the year instead of a 1099 form. One example of this is the Professional Association of Contract Employees. They still let you call the shots regarding assignments, work hours, etc. but just do the paperwork for you, at a fee of course.