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Bleeding U.S Dry?


If you are a subcontractor you might have asked yourself a very common question: When the place where I work each day is paying for MY skills, how oh why is someone else able to take 30 to 75% of my wage?

No, I am not talking about the Government. While the 30% the 'Fed adds on top of that skim cripples us to taking home only about .25 - .40 on the dollar, every contractor who has had to scrimp and save to work hard while others bask in our earnings knows how much it hurts. How did this happen?

Who Ruined It for Us All?


Many years ago, a bunch of sub-contractors sued their contract employer (IBM) for benefits. To the horror of all genuine consultants, these secretaries actually won the lawsuit. From that dark day to this, in order to avoid those legal entanglements, every company in the U.S of A now uses "Shell Companies."

Shell Games


You know how the shell game works - Some 3rd party company contacts you. They tell you about a great contract job. You give them your resume, you win the interview, and you report to work. When the work is done, you are out of a job. In exchange for merely getting you an interview with a decision maker, you fork over many, many, dollars an hour to the middle man. How is that fair?

According to the U.S. Government, loosing full quartile percentages of our hourly wage *would* be fair if our employment continued after the sub-contract work was ended. Since it doesn't, the shell company should be either paying us as 1099 or W2S (statutory) Employee. That is what federal tax law says.

Taxing Terms


The difference between 1099, W2-S and W2 is a matter of ensuring that you can keep things like health insurance and other business deductions working the same way from contract to contract; Avoiding loss of benefits for pre-existing conditions.

When we work W2, United States Employment and Tax regulations assume that a shell company is taking care of us - after that single contract is over - as employees. For far too many of us independent contractors however, our shells just dump us back into the job search game again. A clear violation of the intent behind that W2 "employee" status, today most shell companies do not even reimburse employees for their travel and living expenses. It's a nightmare.

To The Rescue!


While we cannot deny that having head hunters can be valuable when we are out of work, we need to change the legal system so as to encourage our real employers to use us directly. To cut out the middle man.

In order to re-kindle the entrepreneurial American spirit, we need to ask our lawmakers to let contractors enjoy the fruit of our own labors. Moreover, rather than allowing a rare breed of idiotic consultants to terrorize our would-be employers with legal nightmares, we also need to ask the government to step in to protect companies from gratuitous would-be-employee lawsuits.

Let companies choose to hire U.S. without fear; Let good subcontractors once again reap the reward for our ability to keep our *real* employers happy. Most of all, we need to liberate our long-term earnings from a host of do-nothing middlemen. After all, is the company where we show up to work each day paying for our ability to get the job done, or the ability of someone else to find our resume on Dice.com or Monster.com?

Dumb & Dumberer-er


The mere fact that modern human resource professionals are actually forbidden by their legal departments from using Internet resources to locate their own employees underscores the foolishness of where our country has arrived today. In the spirit of competition; in anticipation of rekindling the genuine supply-and-demand mentality, if we want to keep America competitive in the world labor market, don't we need to cut out as many middlemen as possible?


Comments

R.A. Nagy 
All,

Nice information there.

When it comes to governmental reform, apathy is the only enemy. Indeed, I have found that, like children, politicians are often starving for good ideas from us. --Not only does acting upon the best ideas make them look good, but by giving them an excuse to nudge others about those same ideas, we are helping them advance their political careers, as well as to solve our problems.

Democracy works. It is only when we-the-people become apathetic and ideas must then come from so many ill-intentioned and / or ignorant others (known as 'ruiners' in 'An Interview with a Saint' (now on Amazon.com btw)), that it fails.

It also occurred to me that there is another truth to share: When working with politicians I often have to keep in mind that (one way or another ;) they hear a lot of voices. For this reason I have found that my ideas go a lot farther when I keep it short, and keep it simple.

Indeed, I often feel the need to condense 5 page of work down to an equal number of paragraphs (or less.) -Yes that process takes time.... preferably a few hours scattered over several days… but the results are always – always – always – well worth it.

In short, I never want to add, As Blasé Pascal once had to “please forgive the length of this work, I had no time to make it shorter!” (sic)

Finally, when dealing with our elected officials, just like when dealing with kids, the process must also feel non-threatening. Rhetorical questions are often better than pointed statements.

I often call the entire process "writing in crayon."

;-)


Max H. 
"I stand corrected Paul... I totally forgot about 13 of the points ;-) Actually, I don't know where I got the number seven from; but Paul is 100% correct. Congress's intervention in contract law as a tax collection measure is among the biggest issue for contractors and many consultants today. For those interested in the 20-points, I found this: http://www.audaxsolutions.com/support/2 ... o_1099.pdf



Paul S. 
"A bit of historical perspective: The period up through the mid-1980's was the heyday for truly "independent" contractors, consultants, call them what you will. These were individuals who, without the supporting structure of a corporation or other formally constituted business entity, where able to go out and negotiate their own work agreements with corporations. It was a great time for techies.

This all came to an end when, in 1986, Congress passed a revision to the Internal Revenue Code including the then infamous Section 1706. What 1706 did was to institute a 20-point test (since consolidated into the three broad categories noted earlier in this thread by Cathy Ludwig and separately by myself) for determining who was a contractor and who was an employee. What was at stake from the perspective of Congress was the estimated loss of billions in tax revenue due to the fact that so-called independents were not paying their self-employment taxes. What 1706 did was to make the employers legally liable for the payment of those taxes for anyone who could not pass muster as an independent under the 20 questions. Most could not, as was subsequently established by a raft of successful prosecutions in federal tax court.

The net result of this was essentially the elimination of "independents" in all but name only, and the rise of the industry of "agencies" whose dual purposes were recruitment of talent and the subsequent assurance that federal and state tax obligations were fulfilled.


Max H. 
"It's not entirely about lawsuits; although they certainly play a role. In my view the scarier issue for companies was when the IRS nailed Microsoft for the 1099's who were not paying their self-employment taxes. That set the ball rolling. After that the 7-test rule began to get a lot of attention from corporate legal; leading to time limits and incorporation requirements.

Of course, once the IRS set the precedent; co-employment litigation followed when some contractors decided that their clients were abusing their temp status... leading to further crack-downs by corp. legal. In my view the lawsuits are unethical, as was (is) the treatment some companies give their contractors; but contract employment is "at-will"; and contractors can walk away from it just as easily as the client can. Renegotiating a contract via the court system is damaging to the whole industry.

I've played the game both as contractor and consultant; generally the former. Contracting is often much simpler from an administrative perspective, and can be nearly as lucrative if you have a good understanding of the play book. I work in a very specialized niche and haven't mastered the art of having the clients seek me out yet. Many have asked me back for subsequent assignments, but the word doesn't seem to spread beyond the client company's boundaries.

Cathy L. 
"It's been my finding that many companies won't use independents due to having lawsuits thrown at them from either the independent, or the government via an audit. The US Government has guidelines to help decide if a person is an independent or an employee.
It is based on:
· Behavioral control
· Financial control and
· Relationship of the parties

http://www.irs.gov/faqs/faq/0,,id=199637,00.html

Many companies don’t want to get burned, or have been burned in the past.
Having a legal entity other than sole-proprietor may help, it does not totally shield you


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