I’ve been an independent consulting for over a decade, and one of the things I always hated was doing all my own back office work. You know, all those things that you have to do to run a business (payroll, taxes, accounts payable, account receivable, etc.) but the time spent doing these things are not hours that you can bill to a client. Usually an independent consultant will either do all these things themselves, get a spouse to do them, or get an accountant to do some of them. I’ve been there, and let me tell you, no matter how you do it, it is not fun. Accountants are expensive and usually don’t want to do things outside of preparing your tax returns. Not everyone has a spouse that wants to (or can do) the back office stuff. So you are left with doing it yourself (which means more time away from things like the family) or giving up on being a true independent and becoming an employee of the firm that finds your gig, and then switching to another firm for the next gig (we call it W-2 by the hour).
But there is another option that most consultants miss (I know I did for a while), outsourcing your back office work. Well, it really isn’t outsourcing. Basically, there are third-party firms (called either pass-thru companies or umbrella companies) that will be your employer of record, and for a small percentage of your total income will do all your back office services for you. Besides getting your payroll, accounts payable, accounts receivable, etc. do for you, you can also get group insurance rates and even a 401k (since you are an employee of the company) and still take advantage of all of the tax deductions you were getting when you had your own company. If you pick a firm that also specializes in your area of expertise (like Information Technology), they can even help you figure out the going rates for your type of work, and even review your contracts and make sure they stick to the normal business practices for your field. Since the firm you are using has to do state as well as federal income taxes (which will increase their costs), most will try to regionalize and stick to a couple of states in a given area, so these firms do not tend to be national, which is why consultants tend not to know about them.
Brendan Tompkins turned me onto iProfesional (aka IPS), and they have been great. IPS tends to stick to the mid-Atlantic States (but still ask before ruling them out). For their small percentage they have a sliding scale, depending on your rate, and even have a yearly cap on their fee. In my case, the max I pay iProfessional for their services is less then what it cost me a year in account and payroll services fees, so it was a total no-brainer for me. Plus, you even get your own “admin” as your single point of contact. I fax my timesheet to the admin, and they handle sending out the invoices and following up with the client if payment isn’t received. The admin will also handle any and all questions. They have a web based reporting system, so I can always find out what my account looks like and keep track of my “business”.
In the end, I wish I knew about these guys when I became an independent consultant. I get the best of both worlds (employee and consulting) at a much cheaper cost then doing it all myself. The only thing I haven’t had the opportunity to test is to see if I could become a vendor of a company like Microsoft with this sort of setup. I can’t see any reason why it would be an issue, but since I haven’t done it, I can’t tell for sure. For all I know, someone in IPS has already done work for Microsoft as a vendor, and I just don’t know about.
Technorati tags: consulting payroll services consultants