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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..."
If you are bring in the contract, and have the rate set, they should be getting no more than 25%. Remember, as a w-2, they have the costs of social security, worker comp, libabilty and their staff.
On a 1099, no more than 10%.
If you feel you will be getting more of these, put together a LLC if you have one other friend also contracting. Two employee make for a group health plan under California law.
Do not let your health insirance lapse for more than 59 days. Otherwise under federal law the health insurance companies can absolutely screw you. Can we all say Pre-existing Conditions.
I can write several pages on this. Anybody want advice, read all the postings and contact me.
I've been a indepentant contractor, gone through agancies, been a salaried employee of several body shops, worked for beltway bandits. 21 years of this.
Bottom line, do a 1099 if you can. Do not under any circumstance let your health insurance lapse for more than 59 days.
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.
see 'shell company' and start formulating a reply along the lines of.. 'yeah, theres plenty, but few will let you run eggdrops/bnc servers.. etc..etc..'?
I did this w. Kelly Technical Services a few years back. I had the deal all worked out with the client company, and then contacted a number of shell companies to negotiate who I'd go through. Except for a brief period when they had an idiot working in the office (a problem which they quickly corrcted) they were quite reasonable.
A friend of mine used (IIRC) "T. H. Yoh" and liked them as well.
The market has changed a lot in the last five years, so YMMV.
-- MarkusQ
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.
If you turn the tables and sell a "product" instead, you will avoid the contractor's ball of wax but arrive at a different set of problems instead. You won't get paid until the product is delivered (probably 30+ days after the product is delivered - purchasing departments sometimes specialize in pushing every term to its limit) and you will have a different set of purchasing hurdles to overcome. I happen to think that in many cases the "selling a product" road is superior - especially for a project you know can do in firm fixed price/firm fixed terms - but look closely at the disadvantages before jumping. Tim.
the big "shell" companies to move all independent
contractors to employee status within their company.
It's a heavy trend, and independent contractors
currently have the choice of accepting a
permanent position with one of these few big
names of face the real prospect of being out of
work for several months. I know several
highly skilled contractors who spent between
5 and 13 months at home with no income, slowly
eating into their savings, until they found
another contract.
The ugly part is that hourly rates for
contractors are down 40-60% this year compared
to 1999, and contractors switching to employee
status face even bigger paycuts.
Personnally my contract ends at the end of May,
and I have been offered to continue my current
work as an employee instead of as a contractor,
and I am being offered a whopping 66% reduction
in my compensation. Still, I might stick with
the job, it's better than no job at all.
This is compounded with a 4.6% inflation rate,
and a 45% surge in housing prices in the last
year, a 15% increase in real estate taxes, not
to mention the effect that the stock market
crash has had on my savings.
But for these shell companies, these are good
times; for each open position they receive
a few hundred resumes of skilled IT
professionals who are currently unemployed
and eager to accept the job, no matter how
low the salary.
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.
Be very careful.... I've been working under an S-corp agreement for more than a year now, and there are some tax tricks that only an accountant can help you get to take advantage of being an S-corp. I could NOT fill out the end-of-year tax forms myself as an S-corp (I'm just not tax savvy that way, or interested enough to read and understand all the fine print) so I had to use an accountant, but he made some great suggestions (including deducting part of my apartment rent as office space and advice on buying equipment!) that made it worth the hundreds of dollars I pay him. Unless you're pretty financially geeked, I'd definitely find an accountant and have a serious chat before you go too far.