Guest Post by Doug Spencer
Consultant focusing on automation and business process improvement. Take your company higher. @LinuxConsultant
Since 2007, I have been a W-2 employee of Solo Workforce, an “Umbrella Employer of Record.” For the readers who don’t know, an employer of record is a company that provides back office support and benefits, typically to otherwise independent workers.
Employers of record handle the paperwork, tax compliance, billing, collections, and other administrative tasks that often take so much of an independent worker’s time. Like all employers, an employer of record issues a simple IRS Form W-2 at the end of the year.
There are many staffing vendors and payroll processing services that provide basic employer-of-record services. What makes Solo Workforce stand out as a premium employer of record is their exceptional, tax-advantaged, benefits package made possible by their unique business model.
When I joined Solo Workforce they set me up as the manager of my own one-person division, just one of many one-person divisions within their larger corporation. My division operates like a separate one-person business, so I can continue to operate like a self-employed independent professional. In this regard, I enjoy all the freedom, independence, flexibility and tax advantages of self-employment.
However, as a corporate employee of Solo Workforce, I also qualify to receive the executive-level benefits and personalized administrative support of elite corporate employment. As an employee of Solo Workforce, I receive higher tax-advantaged income, better benefits and greater independence than I could possibly receive through self-employment, temporary employment or traditional employment. You might say, I enjoy the best of both worlds.
Collected revenues generated by my self-directed contract work enter my division as a pre-tax revenue stream. These pre-tax funds purchase my benefits, pay the employer’s share of payroll taxes, reimburse me for out-of-pocket business and medical expenses and contribute the employer’s match to my 401(k) account. The remainder of the revenue stream makes up my taxable gross pay.
One notable advantage of Solo Workforce’s tax-advantaged business model is the ability of Solo Workforce members to write off the same business expenses as a self-employed professional, creating huge tax savings. I can actually earn higher tax-advantaged total income as an employee of Solo Workforce than if I were a self-employed independent contractor with the same gross receipts.
Here is a list of IRS online publications that summarize deductible business expenses:
- Publication 15 (Circular E), Employer’s Tax Guide For use in 2015
- Publication 15-A Employer’s Supplemental Tax Guide For use in 2015
- Publication 15-B Employer’s Tax Guide to Fringe Benefits For use in 2015
- Publication 463 Travel, Entertainment, Gift, and Car Expenses For use in preparing 2014 Returns
- Publication 529 Miscellaneous Deductions For use in preparing 2014 Returns
- Publication 535 Business Expenses For use in preparing 2014 Returns
A quick perusal of these publications will give you an idea of how valuable a premium employer of record, like Solo Workforce, can be for your bottom line.
Qualifying tax write-offs available through Solo Workforce that are especially important for me include:
- Maximum tax-free GSA per diem reimbursements for temporary accommodations and living expenses while working away from your home area. See http://gsa.gov/perdiem for rates in various places.
- Tax-free automobile lease allowance, generally usable in conjunction with the per diem benefit.
- Tax-free travel reimbursement, for travel in furtherance of my work.
- Privately owned vehicle travel reimbursement mileage for non-commute travel in furtherance of the business. POV rates are shown at http://gsa.gov/pov
Additional tax write-offs available through Solo Workforce, but generally not available through an ordinary employer of record, include:
- Tax-free reimbursement for up to $15,000 in out-of-pocket medical expenses.
- Child care expenses
- College savings plan
- Meals & Incidental expenses
- Business promotion and marketing
- General supplies and miscellaneous expenses
- Lease-back for expensive business related items
- Office rental
- Training and Tuition
Most contract professionals who use an ordinary employer of record are completely blocked from writing off any business expenses.
Another notable advantage of the Solo Workforce business model is the Solo Workforce 401(k) retirement savings plan. The Solo Workforce 401(k) plan has both Roth and traditional components and is arguably the most powerful 401(k) in the country. Members can load their retirement savings account up to the absolute IRS maximum faster and with a lower gross wage than a self-employed person or the employee of an ordinary employer of record. Like most companies offering a 401(k), Solo Workforce members can make a voluntary contribution from gross wage up to $18,000 ($24,000 is over age 50).
What sets Solo Workforce apart, however, is their 200% employer match. Solo Workforce matches my voluntary contribution two-to-one using funds drawn from my pre-tax revenue stream. Accordingly, I can contribute up to the maximum IRS contribution limit of $53,000 ($59,000 if over age 50) as soon as my declared gross wage reaches $75,000. Not only do my retirement contributions start compounding earlier in the year, but I can defer paying taxes on $35,000 more than I could defer as the employee of an ordinary employer of record (provided the ordinary employer of record even offers a 401(k) at all). This is a huge tax advantage worth thousands of dollars in tax-advantaged income and compound growth.
I also receive many non tax-related benefits from Solo Workforce. Here are just a few:
- Flexibility to work from anywhere, for individuals or companies located anywhere in the USA and many foreign countries, with a simple contract.
- Unlimited earning potential. Earn as much as you’re able to, without a set salary. Set your own fee structures and amounts.
- Above the social security cap ($118,500 in 2015 and 2016), Solo Workforce passes through both the employee AND employer portion, resulting in a 12.4% increase in net pay above the cap. Ordinary employers of record keep this 12.4% windfall for themselves.
- Group health insurance, life insurance, and other benefits commonly available.
- Solo Workforce provides $5M aggregate professional insurance to their Solo W-2 employees. This provides the Errors and Omissions and General Liability coverage that many clients require, and this is included in their basic fee.
- If you elect to not take a benefit, the cost of the benefit is paid to the worker, rather than forfeited, as is often the case with an ordinary employer of record.
- Solo Workforce provides clients with a level of co-employment mitigation that a sole proprietor or closely held corporation or LLC doesn’t.
- Solo Workforce provides referral rewards equal to 1% of the referred party’s collected revenues. The average referral reward is $1,000 per year per referred individual and continues indefinitely for as long as the referring party is a member of Solo Workforce. There is no limit to the number of referral rewards a member can earn.
It is remarkable how much I save in taxes as a Solo Workforce employee. Considering the top individual federal income tax rate is as high as 39.6%, my state tax rate is as high as 9.85%, and social security and Medicare tax are 15.3% (SS on the first $118,500), or as much as 39.6+9.85+15.3 = approximately 64.75% total. Some of these taxes are based on others, credited against each other, have caps, etc., so determining the actual tax rate is much more complicated than this simplification, but the end result is that saving or deferring the tax overhead typically exceeds by far the very low service fee charged by Solo Workforce. In this regard, you might say, “Solo Workforce is better than FREE.”
As a result of these and other benefits, Solo Workforce employees generally keep more of their billed revenue working for them, paid as net pay, reimbursements, retirement funding, or growing their division. It’s a great way to avoid the mire of paperwork and administrative hassles associated with running a business, while receiving an executive-level benefits package and maintaining virtually all of the independence and advantages of being an independent contractor.
One drawback I have found has been finding polite ways to say “it’s not you, it’s me” to the direct hire offers I receive. I’ve never found another benefits package that benefits me as much as the one I get with Solo Workforce. Fortunately, since Solo Workforce is such an exceptional value, I can also provide an exceptional value to the companies I work with on a contract basis and keep my benefits, while providing the results and support the client needs. It’s win-win for everyone involved, which is what I strive for in any consulting relationship.
I’m Doug Spencer. I’m a consultant experienced with Linux, Unix, Automation, Databases, Security, Programming, Data Center Migrations, Business Process Improvement, Disaster Recovery, and related technologies. My goal is to help companies grow by facilitating exceptional value with results. I provide up front pricing and guarantee you receive the value you pay for.