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."

WBE/MBE/DBE status?

[gregwbrooks]

Just curious: Do any of these companies offer the added benefit of being MBE/WBE/DBE certified? I do a lot of public-sector work, where there are typically set-asides for disadvantaged, minority-owned or woman-owned busiensses.

If they could offer inclusion into one of those categories, it would be a pretty big advantage in bidding on some projects.

Re:WBE/MBE/DBE status?

[orangesquid]

But don't forget doing the job is only half the work. It's really important in most jobs to be a people person, to be able to communicate well, respect your boss's opinion, be open to your underlings' opinions, prioritize well, manage your time effectively, and all the other things that companies are always talking about. Now, you may call these "doing the job", but many computer programmers probably think that being a good programmer is about all they need. Your black lesbian Muslim cripple may bring va

Re:WBE/MBE/DBE status?

[mercenaryCoder]

Absolutely. The company I "work" for decided to go this route. The founders' wives were MBA's so they put the business in their names -- walla.

Spent most of my carrerr doing this

[mpechner]

If you can get a 1099 out of the "shell", do that. One of the advantages of being a 1099 contractor is deducting that new laoptop. Almost not worth the deduction as a w-2 employee.

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.

Re:Spent most of my carrerr doing this

[count3r]

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.

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...

Re:Spent most of my carrerr doing this

[mpechner]

Yes, but if you have your own shell, you can get a 1099 from the shell. Again, makes this trips to Fry's or buying tech books deductable.

Re:Spent most of my carrerr doing this

[iwrasahp]

A very good point. It's not clear from the original post if the opportunity requires going through 1) a 'shell company' (i.e a corporate entity) which provides a level of legal protection etc. to the client or 2) an 'approved vendor' (often referred to as a 'contract house' or 'body shop') and is the preferred, and sometimes only, way to provide services (for which you will be paid) to the client.

If the answer is 1, your options are many up to and including setting up your own company. If you are not int

Re:Spent most of my carrerr doing this

[dubl-u]

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.

Just create your own S-Corp

[cs668]

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.

Re:Just create your own S-Corp

[digerata]

I almost fell into the scam of those companies that will 'do all of the paperwork for you' for between 300-500 dollars depending on where you are at. Then I looked around...

In MI you can create an LLC for a grand total of 60 bucks. 10 dollars for the county DBA (doing business as) and 50 bucks to register the paperwork with state. You don't even need the DBA later on, you could just skip that.

Piece of pie.

Re:Just create your own S-Corp

[John Hasler]

> In MI you can create an LLC for a grand total of
> 60 bucks.

Some companies will not contract with a corporation that has not existed for some minimum number of years. Others require proof that the corporation have a minimum number of employees and/or a minimum annual revenue.

Re:Just create your own S-Corp

[weave]

I would think you would also need to get liability coverage. What if you get sued?

Talk to an accountant

[HWheel]

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 buyin

Re:Just create your own S-Corp

[cs668]

Depends on the State.

Sorry it cost you.

As long as

[da_Den_man]

Your shell company doesn't do what mine does and takes HALF of the contract amount (total is $65....they get HALF to have me work where I do) you should be fine

I know I am not the only one in this boat that doesn't get any of the benefits of a contract yet supports this company just so I can pay my bills. It sucks, as they make as much as I do just because I show up to work.

Let the vultures start working

[MerlynEmrys67]

Many large companies go through "Approved" vendors to "hire" contractors. Basically if you want to contract to one of these companies you have to go through a limited number of body shops. The disadvantage is these companies take a HUGE cut, sometimes as high as 40%. Now realize that there are some overheads, 6.5% social security, 1.? % medicare... But somehow adding it up to 40%.

Now if you are able to 1099 to the company directly (so you get the WHOLE check) you are well off, companies that are used t

Re:Let the vultures start working

[dubl-u]

Yep! The reason I want to use a shell company is that some companies don't like doing 1099s directly. Also, having somebody else take care of billing, medical, dental, and 401k is appealing to me; I hate that admin stuff, so paying 4-5% of my gross to have it all go away seems reasonable to me.

Re:Let the vultures start working

[O'Limpy]

here in Sydney, Australia, I've seen the reaction to this trend. Large employers didn't like the idea of body-shops getting rich, so they've imposed their own terms on prefered suppliers. In 2001, we have signed a trilateral contract, where each of the three parties was aware how much the other two are paying or getting( the employer, the body shop and myself). The body shop took 20%, still outrageous, considering that it was pure commission, without any benefit to me.

Now I've found another contract elsew

Did anyone else..

[mivok]

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..'?

Re:Did anyone else..

[SimJockey]

Heh, in my case I was thinking more like "They have some interesting refining technology, but their upstream work in places like Nigeria is a bit sketchy." (Shell Oil, who I have in fact contracted for in the past.)

Kelly Technical Services

[MarkusQ]

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

More w/ Less.

[Anonymous Coward]

I have had positive experiences with Volt. They took the least percentage of the approved vendors and kept to their commitments. On the other hand (ssai.c0m) will screw you like a twenty-five cent whore but only if you are a former lingerie model.

Re:Kelly Technical Services

[meme_police]

I'm with YOH, who are fine but my previous small, local company actually paid for our health insurance. At YOH I have to pay the full premium. OTOH YOH is nice for administration reasons, on-line timesheet, YOH contact on-site, blah blah blah. Obviously I'd rather be staff instead, though.

tagline question

[theglassishalf]

Is your tagline from Rhapsody in Blue?

Re:tagline question

[MarkusQ]

Is your tagline from Rhapsody in Blue?

Yes.

-- MarkusQ

Fairly common in UK

[larien]

Here, there are a number of contractor which work through an agency. The contractor fills in a time sheet for hours worked & gets it signed by the company being worked for. The agency pays the worker through normal procedures (including deducting tax at source) and bills the company for the pay + a "management fee"; I think mine charges the company 3% or thereabouts.

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.

Re:What about contractors in India ?

[dubl-u]

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.

If you can get out of "contractor"...

[shoppa]

The shell company is in all likelihood only necessary because you're selling your services as that of a contractor.

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.

Big push for this

[ubeans]

In Montreal there is currently a big push from
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.

Professional Association of Contract Employees

[MichaelCrawford]

I don't have any direct experience with the Professional Assocation of Contract Employees [pacepros.com], but their Contract Employees Newsletter [pacepros.com] is useful and informative, and based on what it says I think they are good folks.

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

UNIX Admin team forming consultancy

[emptybody]

I am manager of a unix admin team. Recent changes in the company have sent all of us looking for new employment. We are looking to form our own consultancy. We are distributed along a 100 mile stretch so will share the burden of on call etc.

Anyone else out there forming companies of their own? Any tips or book pointers for those of us starting out?