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Shell Companies for Contractors?
dubl-u asks: "What do my fellow freelancers feel about the various shell companies out there? I've got a chunk of work coming up at a place with an especially persnickety contracts department, and I'll probably need to go through a third-party shell company. I used one a couple of years back and they were ok, but there are a lot of them out there, and I'd love to hear about real-world experiences before I sign up. For those unfamiliar with this part of the business, it goes like this: I find my own work; the shell company hires me as an 'employee' and handles my billing and tax withholding for me. Some also 'provide' things like health insurance and 401k plans, although I have to pay for it. You can think of it as outsourcing a lot of the paperwork of being a freelancer. Some outfits, large companies especially, demand this sort of thing."
If they could offer inclusion into one of those categories, it would be a pretty big advantage in bidding on some projects.
"It was a summer's tale: Just a boy, his Linux, and a head full of dreams..."
In most states it is easy to incorporate. Maybe $150 if you do the paperwork yourself.
Then they are doing business with a corporation and you might be saved the cost of dealing with the shell company.
Actually, many large companies (including mine) are even more restrictive-- not only do they require a contractor to work for a shell company, the shell company needs to be on a (usually short) list of approved vendors.
Forming your own shell doesn't solve this...
On a 1099, no more than 10%.
The ones I've looked closely at, ZeroChaos.com, MyBizOffice.com, and PACE all charge less than that. ZeroChaos is very vague about their fees, but they quoted me $300 per month per active client. MyBizOffice charges 4% for the first $125k in billings and 1.5% after that. And PACE charges 5%.
I don't think any of them will do a 1099; they all seem to do W2s, and of course all of the taxes come out of my share. At least one of them has an intriguing lease-back program, where I buy the equipment I want, lease it to the shell company, and then they deduct the leasing fees from my inccome. I believe this is a dodge to get the same tax benefits for capital goods as working on a 1099.
Some will also provide pensions/holiday pay, but I've been happy working with the concept that I get paid for what I work. It makes for some lean times (e.g. Christmas) and some gluts (I've done a 7 day week before) but effectively balances out.
It's a simple way of working, as you count as a normal employee in most ways which simplifies tax.
Why should an american company hire an american contractor. They can have the same kind of skills for far less money hiring a contractor in India...
There are a lot of reasons. Most of them boil down to the advantages of physical presence, which provides high-bandwidth, low-latency communication. Others are primarily social.
There are times when outsourcing can make sense. If you have a clear spec and people can implement it properly without asking any questions, then sending the work off can work. But this contract includes analysis, design, construction, and training in a short-cycle iterative process. Outsourcing that to another timezone is impossible.
Hint to those worried about their jobs: standard software practices don't take proper advantage of physical colocation. Adopt a process like Extreme Programming, which does, and you'll have a business advantage that can't be matched through outsourcing to Outer Slobovia.