Pros and Cons of Umbrella Companies

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Author	Comment
rkj7 Registered User Posts: 1 (10/6/01 9:11:46 pm) Reply | Edit | Del All	W2 Vs Umbrella thru a borker what are the pros and cons of utilizing a borker's services by going thru an umbrella as opposed to being a W2 employee of the borker? Can one even do this? If so, how does one go about convincing the borker to agree to this arrangement?
IT Whore Registered User Posts: 829 (10/6/01 10:00:32 pm) Reply | Edit | Del	Need clarification Do you mean: W-2 through borker vs. 1099 through borker or W-2 through borker in regular borked arrangement (i.e., no disclosure, with non-compete, etc. ) vs. W-2 through an umbrella agency (basically a borker that is low bid on simply managing the paperwork) ?
RMP  Registered User Posts: 1482 (10/6/01 11:13:20 pm) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker I think I understand the question, it's whether to subcontract to a broker via an umbrella rather than just accept being a W-2 employee of the broker. The benefit to the contractor depends a lot on the umbrella selected as well as how serious the contractor is about developing as an IC (or at least seriously trying it out). Aside from the issue of growing as an IC, the umbrella's benefits and tax deductions usually result in a better deal than what's available from the broker on their W-2, often better enough to more than cover the umbrella's fee. Some umbrellas also allow their members to be other than W-2 employees of the umbrella, giving an additional potential growth path for contractors who, after trying the umbrella and liking it, may wish e.g. to incorporate but still use the umbrella for its benefits and/or for dealing with brokers/clients who won't do business with a 1-person corp. Some umbrellas can even provide their services "on the side" or "in the background" to the consultant's corp which deals directly with its clients who don't even know the umbrella is there. As the contractor learns more about the paperwork, marketing, etc. he may decide to go exclusively with his own corp and thus "graduate" from the umbrella's effective "incubator" service. And some umbrellas can keep providing their services during gaps between contracts. Also if the contractor likes the umbrella, it can be a permanent source of benefits, employment record stability to look good on credit applications, etc. even if the contractor has to change brokers/clients with each new contract. The umbrella can be a temporary or permanent substitute for the contractor incorporating, or a stepping stone along the way as noted above. As far as convincing the broker to go along, if they'll listen and be rational, they'll usually be at least as willing to allow an umbrella as to allow the consultant's own corp, usually more so since umbrellas have multiple contractors, insurance, etc. and are run by someone other than the contractor, someone who knows the legal and tax issues. Brokers don't always listen and many are stubborn but this may be overcome if the client wants you. Most umbrellas of course will also try to help and can often persuade the broker to go along. It generally gets easier to keep using the umbrella after the first contract, but there is usually no obligation to do so. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC People - Openings - Benefits - Fees - Acid Test - Umbrellas - Per Diems - IRS
IT Whore Registered User Posts: 831 (10/7/01 3:34:42 pm) Reply | Edit | Del	Don't forget the big benefit of being W-2 You are an employee and therefore are covered by labor laws - i.e., you won't be stiffed, and you could be eligible for unemployment if you get released.
RMP  Registered User Posts: 1485 (10/8/01 3:02:11 pm) Reply | Edit | Del	Re: Don't forget the big benefit of being W-2 Very good points. This applies whether you're a W-2 employee of the broker or an umbrella. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
ChiefE  Registered User Posts: 36 (10/12/01 9:58:07 am) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker One thing you may want to consider is the rate that a staffing company would pay you as their W-2 and the rate they would pay you corp. to corp. Some staffing companies would uplift the corp. to corp. rate they would pay you to include their diminished employment risk, employer side of tax, etc.: Example: They would pay you $50 per hour as their W-2. On a corp. to corp. basis they would pay you $57.50 per hour for instance – a 15% higher rate to compensate for the fact that they do not have to pay taxes, workers comp, etc. Some staffing companies seemingly offer you a better rate on a corp. to corp. basis, but in reality short change you: Example: They would pay you $50 per hour as their W-2. On a corp. to corp. basis they would pay you $54 per hour for instance – an 8% higher rate. You should look to get a rate that is at least 15% higher (or so) than a staffing company’s W-2 in order to at least level the “playing field”. Beyond that, through an umbrella you have similar tax and other benefits to being incorporated yourself (i.e. you get to keep the employer side of taxes when you cap out, expenses, etc.). As far as a choice between incorporating and using an umbrella, there are advantages and disadvantages to both. The right choice really depends on the individual’s needs. I could provide for you a side-by-side comparison, but I think if you visit some of the umbrella company’s websites, they usually offer you some basis for comparison. I know RMP has a short list on his website, which may be a little dated (RMP…FYI - The Churchill Benefits link is no longer valid – they were acquired by Opus360, integrated into FreeAgent and then spun back out on their own as Yurcor – www.yurcor.com) but a good start. There also exists a more complete list on DMOZ: dmoz.org/Business/Financi..._Services/ Another thing you may want to consider is CASH FLOW. A staffing company would pay you most likely no less than 2 times per month as their W-2. On a corp. to corp. basis, at lest the trend that I am noticing lately, you would be fortunate to get paid net 30. Most realistically, you should likely be prepared for 45-60 days from invoice, dare I say even longer. I will say that there are still staffing companies that are paying their subs (corps) 2 times per month or so, but these are few and far between. However, depending on whether or not you are comfortable with this, you may look for a factor to provide you with cash flow. This would most likely cost you between 2%-3% of your outstanding amount monthly. The factors usually hold you on recourse after 75-90 days, so you would need to make sure that the invoice are paid by that time. I would recommend that you look at the decision as 2 separate issues because the staffing company’s corp. to corp. rate should be the same whether you are incorporated or use an umbrella. The questions are: - Do you want to work through a staffing company as their W-2 or on a corp. to corp. basis? - Do you want to be incorporated or join an umbrella? Hope this helps. Regards, Michael Beygelman President, CEO iamindependent.com
RMP  Registered User Posts: 1498 (10/12/01 3:51:31 pm) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker Thanks Mike, good summary, and I'll look at those links when I get a chance to catch up. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
rkj7 Registered User Posts: 2 (10/13/01 2:33:35 am) Reply | Edit | Del	Checked out the umbrella sites IT Whore, iam sorry that my question was confusing. RMP phrased it better. <<>> Mike, I checked out the side by side comparison on the umbrella co.s websites, but they are obviously biased towards umbrellas. All of them suggested that one could earn more and save more using an umbrella than by being 1099 or corp. So, could you tell me what really the disadvantages of using an umbrella are?
RMP  Registered User Posts: 1501 (10/13/01 2:56:05 pm) Reply | Edit | Del	Re: Checked out the umbrella sites So, could you tell me what really the disadvantages of using an umbrella are? You may not want or need an umbrella if you want to learn enough of the legal, tax, insurance, benefits, etc. issues to handle those yourself, you've thoroughly checked out (by lots of reading and talking with attorneys and accountants) the various forms of business and have set yours up the way you want, you have no problem getting brokers and/or clients to do business with you instead of saying "W-2 only", you can find adequate benefits on your own, you can handle your cash flow well, you never do team projects or if you do projects jointly with other consultants you're happy to take the extreme risks and hassles that go along with having employees or to take the 1706 risks of using subcontractors, and you want total control over all these aspects and are willing and able to spend the non-billable time keeping up with them all. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
ChiefE  Registered User Posts: 37 (10/14/01 12:23:35 pm) Reply | Edit | Del	Re: Checked out the umbrella sites The disadvantages of working through an umbrella are not necessarily umbrella business model specific, but rather umbrella company/service specific. Regardless of the perception all umbrella-type services are different, so some of these disadvantages apply to some umbrellas while not to others, etc. - An umbrella may not be willing to accept the risk that you would be willing to accept as a single-person or micro corporation: Recourse terms in client’s contracts, various non-compete clauses in client’s contracts, personnel replacement terms in client’s contracts, etc. - Loss of brand identity / building umbrella’s brand: You may have a vision of becoming the next Microsoft? By working through an umbrella, you are not selling or building your company’s brand/name but rather the umbrella’s. Also, the contract is between the umbrella (NOT your corporation) and the client. Therefore if you wanted to leave the umbrella and do business directly at that client in the future, you would have to sign a new agreement or face potential non-compete issues. - Cost: If your wife does your books/billing/collections, etc., your brother is an accountant, your military buddy is an attorney and your college fraternity brother is in the insurance/benefit business, and as a result you can get your business issues taken care of with no or minimal cost by people you would trust your life to, then the umbrella is going to cost you a few thousand $$ per year you do not need to spend. This sounds like a big wish list, but some people are in the above situation. If you are not, still examine both the quantitative and qualitative costs to see if it financially makes sense. - Ego: Some people want to be the President/CEO of ConsultCo, Inc. Working for an umbrella you are not. Sound silly to some people, but to others it is not. - Payment terms: You may be able to get better payment terms from a client if the client knows you are “working for yourself” rather than through an umbrella. - FINANCIAL SECURITY: I cannot stress this point enough. I do not believe individuals considering the umbrella-type services understand this completely. Let me try to unravel this and hope I make some sense. Please understand that an umbrella service bills the client for your services, and the payments are made payable to the umbrella. When the funds come in, they are commingled (the umbrella is most likely using your money). What does that mean to you? Well if you are a W-2 employee of the umbrella, it means that the umbrella can use your money for its operating expenses, internal salaries, etc., because on paper they are set up just like a consulting company. Therefore if the umbrella goes under and you have say $40,000 in deferred comp, $30,000 in paid invoices sitting in your account with them waiting for you to take it in the form of payroll and other funds, YOU LOOSE YOUR MONEY!! You would most likely be able to recover minimum wage for the hours worked, but as far as anything else – unlikely. For instance, most umbrellas do not operate within the guidelines of law. In NJ, the state mandates that an employer pay their employees at least 2x per month. However most umbrellas pay the individual W-2 employees only when the umbrella gets paid. If your relationship with the umbrella is on a corp. to corp. basis, where you are still incorporated but have outsourced billing, collections, etc. to an umbrella, then you have an agreed to hourly corp. to corp. rate which the umbrella pays you. This way you may be able to sue them and collect, but will most likely be at the end of the line to get paid. The reason why I bring this up is that there are several high-profile umbrella services that are in financial trouble. Some are public, have not been profitable in years and are operating by the skin of their teeth on lines of credit from mortgaged receivables (no innuendo here – but who’s receivables do you think they are??). Some are venture funded, not cash flow positive and are running out of money. Some are privately held, but during the recent financial downturn their backers/principals have been very badly hurt. If you are considering this type of service, do your due diligence. Please understand that I am just being honest on this point. I believe this point represents one of the most significant risks to the individual currently using / seeking an umbrella-type service. Once you are aware of all the real risks / disadvantages of using an umbrella-type service, you should be in a better position to make a decision between incorporating and using an umbrella. Regards, Michael Beygelman President, CEO iamindependent.com
rkj7 Registered User Posts: 3 (10/14/01 4:29:50 pm) Reply | Edit | Del	Great Info Thanks mike and RMP, some great info there, especially the financial security thing.
rkj7 Registered User Posts: 4 (10/15/01 5:59:54 pm) Reply | Edit | Del	Some more clarification needed Mike said: <<>> RMP said : <<>> Guys, could you explain these two apparently contradictory statements? How an umbrella can work in the background?
RMP  Registered User Posts: 1504 (10/15/01 7:28:54 pm) Reply | Edit | Del	Mike raised interesting points The disadvantages of working through an umbrella are not necessarily umbrella business model specific, but rather umbrella company/service specific. Regardless of the perception all umbrella-type services are different, so some of these disadvantages apply to some umbrellas while not to others, etc. I'd say that's true (of course I may be slightly biased ); shop carefully, there's a lot to choose from. An umbrella may not be willing to accept the risk that you would be willing to accept as a single-person or micro corporation: Recourse terms in client’s contracts, various non-compete clauses in client’s contracts, ... That may be true, but in a way it's an advantage in that the umbrella might be able to help negotiate away the worst clauses. If so, that can be very helpful, and if not, it tends to indicate an unreasonable or even abusive broker or client. Loss of brand identity / building umbrella’s brand: ... By working through an umbrella, you are not selling or building your company’s brand/name but rather the umbrella’s. To some extent that's true, it depends on the umbrella and how they handle this. Some encourage consultants to market their practice. Some provide business card forms the consultant can customize. Smart umbrellas recognize the value of working together with their consultants as a team, knowing that marketing for either tends to help both, almost like co-operative advertising. Also, the contract is between the umbrella (NOT your corporation) and the client. True in most cases, although some umbrellas can work in the background, providing benefits, payroll, and other services to your corp which deals directly with your client or broker. This generally doesn't work quite as well in providing the tax advantages of using an umbrella, but it's a useful flexibility. Therefore if you wanted to leave the umbrella and do business directly at that client in the future, you would have to sign a new agreement or face potential non-compete issues. Of course you'd need to sign a new agreement with your client (or broker) to cut out the umbrella, but there should not be any non-compete issue if you found the client yourself (with or without a broker), since an umbrella normally doesn't do the marketing for you. If the umbrella or one of its member consultants found the client for you, though, it's only fair that there should be at least a small non-compete. Payment terms: You may be able to get better payment terms from a client if the client knows you are “working for yourself” rather than through an umbrella. Maybe, if you have a very nice client, but I think it's more likely that the umbrella's higher clout can help negotiate better terms from the client, and if not, most umbrellas do provide some kind of factoring. On the financial security issues, to some extent this applies to every company in the chain, including your own and your client, and especially any brokers involved (and it's my guess that the brokers are usually the weak link in the chain although I don't have any statistics), so umbrellas aren't alone in this. I am surprised to read that many umbrellas are in trouble, especially since most of them are much bigger than we are. I would also be surprised to find any of the W-2 umbrellas violating employment laws, since they're obviously very visible and very vulnerable in this high-profile part of the legal and tax jungle. From what I've seen (and it may vary by state), exempt employees (which includes most everyone here that's an employee) can be paid monthly rather than more frequently that that. And I think most W-2 umbrellas pay regularly regardless of when or if paid by the client, although I could be wrong on that one. Of course if the clients are stiffing them, that could explain some of their problems. Also if you're a W-2 employee of an umbrella, I think you'd be first in line (after the IRS) if it fails. I wonder how much overhead the larger umbrellas have (staff etc.) - they probably have to have at least 20-50 consultants billing at all times in order to at least break even. We can get by with somewhere around 5 and when we get to around 10 consistently we should be able to start paying bonuses. Does anyone know if any other umbrellas pay bonuses when they're doing well? or how much overhead they have? I'm curious. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
RMP  Registered User Posts: 1505 (10/15/01 7:38:22 pm) Reply | Edit | Del	Re: Some more clarification needed Well, to be honest, we're the only umbrella I know of that can operate "on the side" or "in the background" like that, and it's because of some of the unique aspects of the way we're set up (which also enables us to keep serving consultants during long gaps between contracts, which I'm also not sure any other umbrellas can do). It still works better if the main income stream flows through us to the consultant, but we can usually provide at least a subset of our services and tax advantages to consultants (or their corp's) who are paid directly by their broker or client. It depends on how the consultant is set up and the details of the arrangement in each case; it usually must be customized. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC Edited by: RMP  at: 10/15/01 7:42:06 pm
ChiefE  Registered User Posts: 38 (10/15/01 8:18:49 pm) Reply | Edit | Del	Comprehensive overview of umbrella services I must say that this is turning out to be a fairly comprehensive overview of the "nuts and bolts" of umbrella services. It is difficult for reasons we all know and respect to discuss umbrella services, yet keep the umbrella service providers' names anonymous. I do want to re-address some issues that RMP has noted previously. Almost all of the disadvantages of using an umbrella service can become advantages to use an umbrella service for specific individuals and their business requirements. Conversely almost all of the advantages of incorporating can become disadvantages to incorporating and advantages towards using an umbrella service. This sounds like a tongue twister, but I think you know what I mean. I did want to elaborate on the issue of the co-mingled funds though: Most umbrella services sign an employment agreement with their "Members", but this employment agreement does not always exhibit the W-2 rate the umbrella service is going to pay the Members. Why? Let me explain: One of the biggest advantages of using an umbrella is to manage what I would call "tax liability", for lack of a better term. Most umbrella services should let you flow your IRS allowable and umbrella service approved business expenses through them, pre-tax. This means that the amount of pre-tax expenses coming out of your “business unit” within the umbrella is a variable. So lets say the umbrella signs an agreement to pay you $75 per hour W-2 wages. Well, if you flow a good deal of expenses through them, your W-2 may not be for $75 per hour. As a result and in theory you could go after them to collect the difference. Now let’s look at the flip side. What if the umbrella signs an agreement with you to pay you $50 per hour W-2 from the same $100 per hour bill rate in anticipation of you flowing expenses through them? Well, legally believe it or not they only have to pay you $50 per hour W-2. So to answer the above question, because of this “duplicity” some umbrella services do not put any rate information in the employment agreement you sign. Since Accenture may charge $500 per hour to a customer and pay their employee $75 per hour there is no case law supporting how much of the bill rate the consulting company has to pay you. Umbrellas are treated just like a staffing or a consulting company, so because there is no agreement stating how much you are entitled to earn, in theory they are only liable to pay you minimum wage. Do no misunderstand me. This is not an issue 99.99%of the time. Nor is there any case law that I can point to…..but times have changed, so it is better to do a little bit more DD on the services. As far as the overhead or cost of doing business for an umbrella service, unless others would be interested in this topic, RMP…. I can send you an e-mail off-list on this one. Regards, Michael Beygelman President, CEO iamindependent.com
RMP  Registered User Posts: 1506 (10/15/01 9:49:20 pm) Reply | Edit | Del	Re: Comprehensive overview of umbrella services Yes, please email your observations on overhead. As to your point about W-2 rates, yes, prospective umbrella users need to understand that an umbrella ideally is run to simulate the effect of a consultant being incorporated plus well-run in terms of keeping up with available tax deductions and using them more or less fully. So just as a consultant's own corp. might pay expenses first (because they're tax deductible), especially reimbursing the consultant for expenses incurred on behalf of the corp. (such reimbursements not being taxable income), and then pay the consultant a salary based on what's left, an umbrella would do the same thing. In both cases, even if the income is constant, the expenses vary, so the remainder out of which salary is paid would also vary, and therefore so would the salary, unless a fixed salary is set low enough to leave room for anticipated expenses (which again can be done using either your own corp. or an umbrella) with a year-end bonus if desired. Anyway, either an umbrella or one's own corp. (or even a broker) could certainly nail down with the consultant how money is handled and paid, including the procedures used to handle expenses, deferrals, benefits, payments, etc. even including spreadsheets if necessary. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
JBB  Registered User Posts: 775 (10/16/01 3:25:23 am) Reply | Edit | Del Community Supporter	Re: Checked out the umbrella sites Hi Having used an umbrella for about two years, let me use that experience to jump in here and comment on a couple of points which were made. - Payment terms: You may be able to get better payment terms from a client if the client knows you are “working for yourself” rather than through an umbrella. My experience indicates that this is usually only the case with smaller companies. The bigger the firm, the less flexible on payment terms they tend to be. - Loss of brand identity / building umbrella’s brand: You may have a vision of becoming the next Microsoft? By working through an umbrella, you are not selling or building your company’s brand/name but rather the umbrella’s. Also, the contract is between the umbrella (NOT your corporation) and the client. Therefore if you wanted to leave the umbrella and do business directly at that client in the future, you would have to sign a new agreement or face potential non-compete issues. Let me relate a story on a tangent to this well described disadvantage. Beginning in Spring of 2000, I started pushing for the umbrella I work with to apply to become a vendor to Sprint. I laid out all the advantages and disadvantages for them and pushed for them to apply on a regular basis up until this past July, when I decided it was a waste of time. I had already managed to obtain a contract with Sprint because I spoke to the hiring manager and sold him on his need for me to help him with his problems. He brought me back in on at least 6 occaisions over the course of the following year because he knew I could deliver. I obtained a written recommendation from him. I gave this recommendation to my umbrella to use in applying for vendor status ( to formally get on Sprint's vendor list ). Nothing happened. Not one damned thing. Why is this you may ask? In this case, it is because this umbrella fears the appearance of being in competition with the brokers / body shops / staffing agencies. A substantial number of the member consultants using the umbrella's services have been placed through a broker or body shop. The umbrella is afraid of upsetting the apple cart; if the brokers / staffing firms get the idea that an umbrella is directly competing with them, then they may be unwilling to work with contractors via the umbrella, meaning loss of business for the umbrella when the contractors abandon ship due to their dependence on the brokers / staffing firms. Another disadvantage that was sort of skirted around was what happens if you aren't paid by the client? Some umbrellas claim to have collection services, as mine did. In my case, when a client stiffed me for 3 weeks work, their collections service consisted of making 2 phone calls, 1 e-mail, and that's it. Anything beyond that you must arrange and pay for yourself. I ended up hiring an attorney and recovering 80% of the unpaid fees, but it was a hastle, to say the least. Some of the benefits that some umbrellas advertise is B.S. They're only benefits if you want to pay the actual expenses necessary to obtain them, as well as adopt the responsibility for managing them yourself. A benefit should be something actually provided to you at no additional expense beyond the umbrella's fee for services. It should be administered by the umbrella's staff or a business partner. regards, JBB Edited by: JBB  at: 10/16/01 3:36:08 am
JJ Registered User Posts: 84 (10/16/01 8:41:06 am) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker I did a thorough investigation of two umbrellas and looked at some websites. #1. Limited the amount of deductions I could take to around 1/3 of my gross rate. Contract needed to be at least three months in order for the umbrella to take it (due to overhead of starting a new contract). Didn't have to pay state income taxes if my home state did not have a state tax (I live in one of the tax-free states). I compared the actual amount of money I would clear and found that there wasn't that much difference. In some cases, I could make more working through a borker. The borker had quoted me an umbrella rate. When I decided to switch back to W2 rate, there was only a 3% reduction to go to W2. I found that involving a third party in the negotiations and considering their limitations (3 month contracts), made the job search more difficult. It wasn't worth the hassle. There is also the matter of time and energy to track deductions. #2 The fee to the umbrella was very high. The calculations to compare this umbrella with a W2 were very complex, and not complete - details varied by state. There were some wonderful savings, but I would also be giving up other benefits. All in all, I didn't like all the complexity - hard to manage the details. Didn't see any more money in my pocket versus W2 including lost benefits plus the time and energy expended to track deductions. If an umbrella is managed by someone who is also in the technical field, they have the opportunity to use your leads to make additional profit for themselves. It takes a lot of time to thoroughly compare the details between an umbrella and a W2. I poured over the spreadsheets. I had spreadsheets of my own for W2. I spent hours (one whole month) comparing. I was not working so I had a lot of time to spend on the details. My conclusion is that it was safer to go W2 (I'm protected by the government to get paid), and the pay differences were not that great. In some cases, I could clear more money through the borker. A lot more convenient to go through the borker - simple paperwork. It is easier to have the borker be the middle person than for me to be the middle person in the negotiations.
rkj7 Registered User Posts: 10 (10/16/01 8:47:37 am) Reply | Edit | Del	Re: Comprehensive overview of umbrella services Mike, i would like to stay in the loop too. If you do not wish to post here, please send me email at: rkjratz@yahoo.com
rkj7 Registered User Posts: 11 (10/16/01 8:49:35 am) Reply | Edit | Del	Re: Checked out the umbrella sites More great info from everybody <<>> JBB, could you tell me what are these benefits that you are talking about? Edited by: rkj7 at: 10/16/01 9:04:04 am
ChiefE  Registered User Posts: 39 (10/16/01 8:55:17 am) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker Interesting information. This broker was only willing to change their effective pay rate by 3% for you to go corp. to corp.? I guess this is a nice way to imply that they do not want any subcontractors but want all W-2’s? In this scenario, you would almost for sure make more take home pay by being their W-2. Smart choice on this one! However, in the future if the broker is willing to be more realistic about their effective corp. to corp. rate (say 12%+ percent more than their W-2 rate), you should take a look at a couple more umbrella services. Sound like the one you looked at was less desirable than some others out there. Regards, Michael Beygelman President, CEO iamindependent.com
rkj7 Registered User Posts: 12 (10/16/01 9:28:14 am) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker Very interesting JJ. Most Umbrella sites i visited (and my calculations) projected a sizeable chunk of a savings over W2 with broker. Maybe, i didn't do my homework right. If you don't mind, could you send me the names of these umbrellas you are talking about and also your calculations (spreadsheets) if you have them at rkjratz@yahoo.com Edited by: rkj7 at: 10/16/01 7:03:04 pm
RMP  Registered User Posts: 1508 (10/16/01 1:35:26 pm) Reply | Edit | Del	JBB got burned by his umbrella? Note - this is not intended as a plug but to respond on-topic to show that umbrellas differ widely. In terms of showing some of the differences in service, I can only mention our own differences, as I'm not familiar with all the details of the other umbrellas out there. You raised a lot of interesting points. It's a shame that the umbrella you worked with didn't try to get on Sprint's vendor list. Some umbrellas are like that, so concerned about appearing objective and not competing with the brokers. I don't know if all the other umbrellas are like that, but since we're a consulting firm first and an umbrella second, we take the opposite approach; any chance to get on a vendor's list is welcome because it helps us place our consultants there which also helps them. I'd've thought that most umbrellas could see the advantage in this viewpoint as well, I'd be curious to know of how others handle this. As far as collection, I guess umbrellas differ there too. There's a collection agency we use if needed; so far the mere threat has been enough to collect from 2 deadbeats. We tend to pursue collection as aggressively as our consultants want us to in each case. Being stiffed hurts us as well as our consultants, and we're quite aware of that. I guess some of the larger umbrellas have so much money that they don't see losing a payment (and thereby also losing a member) as a big deal. As far your statement that benefits should all be paid for by the umbrella, that might be true if all consultants were the same and always needed the same services. Since this is obviously not true, it wouldn't be right to charge everyone for services only some of them want, so it does need to be at least partly a la carte. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
Greg Registered User Posts: 213 (10/16/01 1:57:37 pm) Reply | Edit | Del	Financial security question ChiefE, what happens with retirement account ( in custody by Prudential) if my umbrella went under? I specifically interested in one your coworker Brian B. left some time ago. If you think it's in trouble now can you please just answer "yes" here or respond via email?
JBB  Registered User Posts: 777 (10/16/01 2:03:59 pm) Reply | Edit | Del Community Supporter	Not burned ...just sold a bill of goods/services that wasn't entirely truthful. After this incident, I continued using this umbrella for another year. I did so with clarity. As far your statement that benefits should all be paid for by the umbrella, that might be true if all consultants were the same and always needed the same services. Since this is obviously not true, it wouldn't be right to charge everyone for services only some of them want, so it does need to be at least partly a la carte. In my opinion, when the consultant pays for a service above and beyond the fee for an umbrella's services in general, then the service should not be classified as a 'benefit'. Its an additional expense not covered by the umbrella's fee. I only consider services included in an umbrella's fee to be benefits. This is not necessarily a bad thing. I agree with your point that you shouldn't necessarily charge everyone for services only a minority of people want. In this case, the only benefit is that an umbrella can provide access to those services. On the other hand, if an umbrella had a fee structure where there was a graduated scale of fees based on level of services, it could theoretically package the a la carte services as benefits of different service levels. However, the umbrellas I'm familiar with generally don't take this approach. regards, JBB
RMP  Registered User Posts: 1509 (10/16/01 2:08:40 pm) Reply | Edit | Del	JJ's experience looking into umbrellas Again, my responses here are to further the topic of differences among umbrellas, and not intended as a plug. #1. Limited the amount of deductions I could take to around 1/3 of my gross rate. In our case, deductible expenses can even exceed income, as long as they're legit. Anyone know what limitations other umbrellas impose? Contract needed to be at least three months in order for the umbrella to take it... Understandable. We handled a one month project once. Of course we prefer longer contracts. As far as the #2 scenario, we ran into something similar. Admittedly, not all consultants who look at us decide to join. Our fees appear high but are mostly offset by unique tax savings. We are vulnerable to differences in how states tax us, but all umbrellas are to some extent; an umbrella that tries to do the same for all states would wind up having to charge more, penalizing consultants in low-tax states. Our calculations and structure may appear to be more complex, and sometimes we miss out on consultants who are turned off by this, but it's because of our unique structure and tax advantages. It takes more work to give better service. The same goes with keeping up with deductions; consultants who want the tax savings will track their deductible expenses and get the deductions (just as they would if they had their own corp.), while those who just want everything as simple as possible will miss out. One of our consultants left a well known W-2 umbrella to join us because we're more flexible, which made the slightly higher complexity worth it. It's a tradeoff and each consultant decides his/her own comfort level on the scale between simplicity and cost or savings. Benefits also vary widely between umbrellas; we try to provide everything we feasibly can to our consultants who want benefits. There was one applicant who was anticipating over $10K in medical or dental expenses, we could've handled that deduction even if no other umbrella could, but we may have failed to communicate that effectively. We have taken steps to better describe our services and simplify them, and have been thinking of offering an "associate membership" that's as simple as any W-2 umbrella (but it doesn't provide as good a deal on tax savings). Although our associate membership probably cannot compete with W-2 umbrellas on price, some of our people feel that some consultants might prefer to start that way because it's easier to understand, and then maybe switch to "full membership" later on to get the better deal on taxes. We'll see if this approach works. If an umbrella is managed by someone who is also in the technical field, they have the opportunity to use your leads to make additional profit for themselves. That's true. Of course any ethical umbrella would make this clear to their consultants and would pay referral commissions to the first consultant to land a client that the umbrella could place more consultants with, and these would be in addition to, rather than a replacement for, the first consultant. My conclusion is that it was safer to go W2 (I'm protected by the government to get paid), Umbrellas differ but if you're a W-2 employee of an umbrella you're protected by the same laws as if you're a W-2 employee of a broker or any other employer. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC Edited by: RMP  at: 10/16/01 2:17:12 pm
RMP  Registered User Posts: 1510 (10/16/01 2:24:22 pm) Reply | Edit | Del	Retirement plans Interesting topic. I don't know specifics of your case but most any qualified plan is subject to ERISA and the funds are held by the financial institution involved, so if the umbrella goes under, it shouldn't matter. At worst, recent contributions that haven't been deposited yet could be lost but legally at least would have to be made up. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
RMP  Registered User Posts: 1511 (10/16/01 2:27:59 pm) Reply | Edit | Del	Savings vs. broker Most broker sites i visited (and my calculations) projected a sizeable chunk of a savings over W2 with broker. Again, it varies widely depending on how serious the consultant is about getting the appropriate deductions. Since getting the deductions is one of the main reasons for using umbrellas, the umbrellas usually work out to be the better deal. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
JBB  Registered User Posts: 778 (10/16/01 2:28:52 pm) Reply | Edit | Del Community Supporter	Re: Checked out the umbrella sites A few of the ones I'm familiar with would be 1. Claims to provide marketing strategies. While RMP may actually help you with this, its pretty unusual for it to happen at all. The firm I worked with runs an ad on a regular basis in Contract Professional magazine claiming to provide this service. I found the opposite to be true and was even dissuaded from a number of marketing strategies by a former VP of this umbrella organizatrion. 2. Collections, as I described in my earlier post. 3. Contract advice and analysis - while you may get some information and advice from the umbrella, they may be unwilling to stray too far from their standard contract. In my experience, there was nobody capable of intelligently answering questions about contracts, let alone making changes to them. If they are willing to let you change the contract or come up with one of your own, you will likely need to seek and pay for an attorney's help. You should realize that the main benefits afforded by an umbrella are payroll and tax services, invoicing, expense accounts, coverage in general liability and possibly E&O insurance policies, and serving as employer of record. Beyond that, the only benefit they provide is access to additional services which may be more difficult and possibly more expensive for you to obtain elsewhere. Some of these services are medical, dental, life, and disability insurance, 401K and/or some other retirement plan. regards, JBB
Greg Registered User Posts: 214 (10/16/01 3:00:53 pm) Reply | Edit | Del	Thank you RMP for quick response It's a money-purchase plan and funds are held by fin. inst.
ChiefE  Registered User Posts: 40 (10/16/01 3:05:13 pm) Reply | Edit | Del	Re: Financial security question Greg, Any qualified retirement account such as a 401(k), a Money Purchase Pension Plan, etc. that you might have through an employer at a financial institution is safe. Regards, Michael Beygelman President, CEO iamindependent.com
JJ Registered User Posts: 85 (10/16/01 3:15:19 pm) Reply | Edit | Del	Re: W2 Vs Umbrella thru a borker I had negotiated for a corp-to-corp FIRST. The gig was in Cambridge - VERY HIGH PER DIEMs allowable. I realized that I would clear a lot more by going W2 to scoop up the high per diem advantage. The recruiter agreed to give me 7 days per diem at W2. I thought the recruiter would deduct 10% from my corp-to-corp rate. I was bracing myself for a 10% cut, but the recruiter only deducted 3%. I had not included the umbrella YET. Umbrella #1 works by my negotiating the rate first - then they contact the client/broker to work out contract details.
ChiefE  Registered User Posts: 41 (10/16/01 4:13:02 pm) Reply | Edit | Del	Re: JJ's experience looking into umbrellas -Usually the umbrella services like to limit expenses to about 50% of revenue. -A good point on the taxes though....an umbrella service should not be in the position to make the decision for an individual on how he or she should manage their tax liability, but should be in a position to advise. This advise to the individual usually comes with baggage - a fair degree of education. Sometimes the education process is complex, as is the US tax laws. It is a trade off. Regards, Michael Beygelman President, CEO iamindependent.com
Ted Graham Registered User Posts: 154 (10/16/01 5:26:48 pm) Reply | Edit | Del Community Supporter	Re: Checked out the umbrella sites >So, could you tell me what really the disadvantages of using an umbrella are? They take some of your money.
RMP  Registered User Posts: 1513 (10/16/01 5:32:48 pm) Reply | Edit | Del	Re: Checked out the umbrella sites Interesting comments. Claims to provide marketing strategies. ... I found the opposite to be true and was even dissuaded Bummer. Marketing's not my strong point but do the other umbrellas out there not even try? Contract advice and analysis ... Sometimes we have to go along with the broker's contract, sometimes we can at least negotiate away the worst parts, and sometimes we can even use our own contract, often with minor changes. We usually solicit input from the consultant as well, and sometimes they catch things we miss. Good summary overall of what umbrellas do for their fee, and for whatever additional costs (generally pre-tax) for additional services. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
RMP  Registered User Posts: 1514 (10/16/01 5:34:34 pm) Reply | Edit | Del	That's an unusually nice broker Sounds like you found an unusually good deal from a broker, they even maybe did the per diems right. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
RMP  Registered User Posts: 1516 (10/16/01 10:15:01 pm) Reply | Edit | Del	Watch for NDA Some umbrellas use proprietary techniques to enhance their service offerings or make them more affordable. If someone had confidential info from such an umbrella, revealing it could violate any applicable Non-Disclosure Agreement. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
JBB  Registered User Posts: 780 (10/17/01 2:08:15 am) Reply | Edit | Del Community Supporter	Re: Checked out the umbrella sites Bummer. Marketing's not my strong point but do the other umbrellas out there not even try? Well, I can't say they never try...but the one I worked with never even brought the subject up in conversation unless it was to answer questions I raised about different marketing ideas and strategies I wanted to try and needed their cooperation with. Their message was consistently either negative or to ignore me until I stopped/gave up asking. regards, JBB
ChiefE  Registered User Posts: 42 (10/17/01 8:44:28 am) Reply | Edit | Del	Umbrella's answer to marketing yourself...and some thoughts Usually the reply you get from umbrella services is to use the job boards. They must not be aware that approximately only 4% of the people get a job through a job board, and most of this 4% is perm jobs. Basically it is the most ineffective way to find a good job and a gigantic Rolodex for a corporation, which they can open at any time. Maybe you can try to use it as such yourself by finding out who is hiring and then taking the “inside track”? However as far as submitting resumes, by the time a recruiter gets to open 198 resume e-mails from a job board, eliminates 188 of them because he or she got tired after the first 10...gets those resumes to a hiring manager's secretary that waits X days for the right opportunity to discuss them with the manager....by this time someone in that department has identified a friend who is qualified for the position, or a staffing company that the hiring manager is friendly with submits a good candidate. A basic precept to why job boards are ineffective is that people prefer to hire people they know or trust, or people referred to them by someone they know or trust. Another basic precept is that people are basically too lazy or too busy (same result from both). It is easier for the hiring manager to get a semi pre-screened candidate from a staffing company who takes care of everything including setting up an interview, than to do all the work him or her self. But…..the umbrella services are timid in pointing you to sources other than job boards for some of the reasons stated in previous posts that I do not want to reiterate, but also because they seldom have the type of relationships their members perceive them to have. Because the business model has never had any real marketing $$ to push the message (other than Opus360 (FreeAgent and their e.Office product): a fine example of the dot com era, of how not to give someone who knows NOTHING about the business $40MM dollars to burn through in a year – what a shame), it is not really known or understood by most of the “would be customers”. Unfortunately most umbrella services that really have a good grasp of the business are either undercapitalized and cannot afford to bring in seasoned marketing personnel, do not have the marketing $$ to have any type of sustentative marketing campaign or both. In its ability to service a duality of customers (both the corporation for whom or through whom the services are being performed and the individual independent professional), I believe that the umbrella service business model is the most effective and the least cost prohibitive of the choices that currently exist, which makes it a win – win. Unfortunately without adequate capitalization it is difficult to proliferate this message (or any message for that matter). There has been significant M&A activity in the staffing space over the last few years and although last year was a little quiet, this year it is picking up again – Aquent just made an offer ($108MM in Cash) for Renaissance Worldwide. I believe what needs to happen in the umbrella services space is some type of a rollup strategy to aggregate the smaller players, or those without vision or direction. This would create a significant larger entity that could be adequately capitalized and have significantly more leverage and contacts to proliferate the message. Unless some drastic things happen in the financial markets in the near future, it is the only other way I see that umbrella services may be able to break their current “stalemate” type position. Granted some organizations might experience small successes on their own, but I have yet to read any press release like “Fortune 500 Company X today announced a definitive agreement with Umbrella Service, Inc. to use the umbrella service as a medium by which it intends to acquire its contingent workers………The umbrella service offers Fortune 500 Company X a significant reduction in costs in acquiring contingent workers, yet provides a higher quality service when compared to Fortune 500 Company X’s other mediums for acquiring talent…….The estimated size of the contract is variable but anticipated to be in the $290MM range.” Also, I do not know if it was mentioned in previous posts, but another reason for the lack of marketing guidance on the part of some umbrella services comes from lack of marketing experience in general by their internal employees – most of them have a business, finance or liberal arts background. Regards, Michael Beygelman President, CEO iamindependent.com
JJ Registered User Posts: 86 (10/17/01 10:28:30 am) Reply | Edit | Del	Re: Checked out the umbrella sites When a contractor is looking for a gig through an umbrella, they are either going to work through borkers or directly with the client. When using an umbrella to work through a broker, I doubt that you're going to clear any more and you'll lose convenience. Looking for a client - means cold calling, going in person, in other words doing the WORK of marketing and selling yourself YOURSELF!!! Or you're going to get referrals from previous gigs that you worked - but is your potential hiring manager the actual person who you'd approach to get the contract. What are you better at -- prospecting for gigs with clients? or doing your technical job? If you do get to make a presentation with the right person at the client, are you prepared to talk saleez - make a professional presentation using a professionally prepared multimedia (or Powerpoint) presentation. Can you close? Can you handle objections? When/if you make the sale, will the earnings compensate you for your marketing and sales. Or will the client expect to get you fot less because you're selling yourself i.e. you can afford to cut out the middleman's portion. Will you turn down the client's offer if it doesn't sufficiently compensate you for your marketing/sales efforts? Are you prepared to switch back and forth between being a technie contractor and a enthusiastic, well dressed sales and marketing persona. Can you follow up with your leads/prospects while you're on a gig? I found that it was a lot easier to work with the brokers - in effect hiring them to do my sales and marketing so I could take a break between contracts and enjoy my family. On gigs, I tend to set aside my personal life and look forward to some real living between gigs. BTW, I passed my real estate license exam here in Florida. I've started work. Purchased a top-of-the-line contact management software program. Practicing my cold-calling scripts. I need to do cold calling if I want to be a successful salesperson. Need to get a wardrobe. Also purchase a digital camera so I can use a picture of the homeowner's house to SHOW and SELL how I will market THEIR house. Cold calling is not easy. A lot of people fail because they are not willing to look for business. If any of you are thinking of selling your home and/or buying another home, contact me. JJ@oracle-dba-consulting.com
RMP  Registered User Posts: 1519 (10/17/01 1:54:53 pm) Reply | Edit | Del	Re: Umbrella's answer to marketing yourself...and some thoug Interesting analysis, especially about the job boards and the marketing of the overall umbrella concept. Unfortunately most umbrella services that really have a good grasp of the business are either undercapitalized and cannot afford to bring in seasoned marketing personnel, do not have the marketing $$ to have any type of sustentative marketing campaign or both. ... Unfortunately without adequate capitalization it is difficult to proliferate this message ... another reason for the lack of marketing guidance on the part of some umbrella services comes from lack of marketing experience in general by their internal employees ... It seems that you've described us (and maybe some others?) rather well. We're hoping to achieve critical mass soon, which should be a big help. I believe what needs to happen in the umbrella services space is some type of a rollup strategy to aggregate the smaller players, or those without vision or direction. This would create a significant larger entity that could be adequately capitalized and have significantly more leverage and contacts to proliferate the message. It's interesting that over the last few years, we've been contacted now and then by an M&A broker on behalf of some consulting/staffing firms looking for smaller companies. We've also been thinking over the years about approaching some of the other smaller umbrellas about a strategic alliance. In light of your comments above, do you think this might be a good idea for us and our consultants? Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC
RMP  Registered User Posts: 1520 (10/17/01 1:56:48 pm) Reply | Edit | Del	Re: Checked out the umbrella sites When using an umbrella to work through a broker, I doubt that you're going to clear any more and you'll lose convenience. That depends on the umbrella, and on what tax deductions you can't get directly through the broker. Robert M. Pritchett, President of Manager - RMP Consulting Partners LLC