Your own Virtual Corporation

RMPDP is the worker's side of our umbrella service provided by RMPCS.

There's more information via the links on this page, but briefly, an umbrella provides a "virtual corporation" through which you can more easily work on a contract basis. It gives you the advantages of having your own company (independence, tax deductions, benefits, and you're the boss) without the hassle (incorporating, legal and tax issues, finding business insurance and benefits). It also lets you use a "broker" or "job shop" to find your client, without having to become the broker's W-2 employee. Whether you use a broker or not, many clients (and brokers) would prefer that you work through an umbrella rather than as a sole proprietor on your own 1099, and some won't even allow corp-to-corp if it's your own 1-2 person company. Thus, working through an umbrella allows you access to contract opportunities you otherwise couldn't reach. It also provides you with the corporate amenities and support that wouldn't be feasible to get on your own. Even if you're already incorporated, an umbrella still has advantages. For example, you can't use per diems through your own corporation, but you can through an umbrella.

Most independent contractors are self-employed (1099), but most umbrellas require you to become their W-2 employee. That's better than becoming the broker's employee, but it still has limitations. Our unique setup combines the best advantages of W-2, 1099, and corp-to-corp status. You're part of our company, like an employee, but you have more independence than a typical employee. And §1706 (which aggravates the contractor vs. employee issue) doesn't even apply to us. In addition, our structure provides certain tax advantages you cannot get from any other umbrella. For example, if you have a net loss, you can deduct it through us. This is especially important these days when contracts are sometimes few and far between and often require travel at your own expense.

Rather than go into the complicated details of our innovative setup, here's a simplified analogy. As you work through us, your payment and tax calculations are similar to that of a "statutory employee" (but better, since our structure provides certain tax savings). First look here to understand how payroll taxes work. Using this analogy, when your client pays an invoice, let's call that 100%. First, we subtract our "umbrella fee" of 2%. Note that most umbrellas charge 4-5% or even more. Then we subtract "payroll taxes" which using this analogy would typically consist of the employer half of Social Security (7.65%) plus certain state taxes (which can be several percent) plus Worker's Compensation premiums (which could be a few percent). This could go as high as 10-15% in typical cases, but in our case, 8% has always been enough. This leaves 90% for your "W-2 Gross Pay". No W-2 umbrella or consulting firm can afford to pay 90% of the billing, but we can. An employer would then subtract 7.65% for the employee half of Social Security; we subtract 7%. This leaves you 83% "W-2 Net Pay". A typical W-2 umbrella would leave you 75-80% and a typical W-2 consulting firm would leave you 50-65%. The chart below shows our calculation using our percentages and also percentages from an actual W-2 umbrella.

		RMPDP		Other
	Rec'd from client	100%		100.00%
-	Umbrella fee	-2%		-4.00%
-	Employer taxes	-8%		-14.65%
=	W-2 Gross Pay	90%		81.35%
-	Employee taxes	-7%		-7.65%
=	W-2 Net Pay	83%		73.70%

You might wonder how we can do this and still make money with only a 2% fee. There are several reasons. For one thing, employers typically don't raise your W-2 Gross Pay after the FICA limit is reached. At that point, the Social Security tax normally drops from 7.65% to 1.45%. Certain other payroll taxes also usually drop even sooner. But employers typically charge the high initial rate throughout the year, partly because they know you could be gone before any of the limits are reached. The employer saves money on the employer tax side but you get the benefit of the savings on the employee side. To make a little more money from those who can best afford it yet still stay competitive, we do roughly the same thing, but better. We simulate the behavior of a hypothetical nice employer who plans on keeping employees long term and therefore lowers the effective tax rates towards an average based on experience. To simplify our calculations, we use an approximation for the FICA limit, we round the 7.65% and 1.45% to 7% and 2%, and we only change the rate after a whole payment, not in the middle of it. This makes our calculations work close to the "statutory employee" model, but in most cases a better deal for you. It allows you to realize some savings immediately, without having to wait until you reach the FICA limit. This, along with certain tax advantages we have, helps us keep our fee at only 2%.

Note - we've recently improved our calculation to make it work even more closely to the "statutory employee" model. It's slightly more complicated than the above, and uses the exact FICA limit and percentages, but turns out to be an even better deal for you. Your "W-2 Gross Pay" equivalent is still 90%, and your "Net Pay" is slightly more than 83%, both of which are a much better deal than you can find anywhere else - and your "Net Pay" goes up to almost 89% beginning with your next payment after the one that passes the FICA limit! Unbeatable! And now we have Direct Deposit!

From your "W-2 Net Pay", we deduct your benefits such as SIMPLE contributions (like a 401(k) but better) and group health insurance. As much as possible of what's left will be tax-free reimbursements of deductible expenses you incur and report to us. Your taxable income will be as small as possible. The total of your income, reimbursements, and benefits still equals your Net Pay but less of it is taxable. Most brokers are stingy with pre-tax benefits and especially with per diems and other deductible expense reimbursements. Even W-2 umbrellas will limit how much of your income you can deduct for expenses, some to as low as 1/3. We're the only umbrella that lets you deduct legitimate expenses that are even more than your income, as appropriate.

If you usually have high deductible expenses, you may feel that other umbrellas are a better deal because they deduct the expenses before calculating payroll taxes. But their umbrella fees and taxes are higher than ours (as you can see in the chart above), and their deductible expense limits are lower. Not only that, our fees and taxes can effectively go even lower as we grow, because of Bonus Points and discounts.

As you work through RMPCP or RMPTS, you earn Bonus Points. When we grow to the point where we can afford to pay bonuses, they'll be paid out in proportion to Bonus Points, so the more you work through us, the bigger your share. Of course, normally only those still with us when bonuses are paid will receive a bonus. This provides further incentive to use us as much as possible. RMPCP/RMPTS members who find clients for each other also earn referral commissions - this is much better than paying a broker.

For clients other than RMPCP/RMPTS, we normally don't give Bonus Points, but if there's enough volume, the 2% fee can go away, and eventually the 8% and/or 7% figures could be reduced. These discounts are usually in lieu of bonuses. Since bonuses are more flexible because they are at our discretion, we normally make the bonuses a better deal than the discounts. So either way, we give you a better deal from the outset, and it can get even better as we grow.

Note - part of our web site is still being redone. Some of the links below will direct you to the relevant parts of our old web site.

Please select for more information:

Next time a "broker" or client tells you W-2 only, or says incorporated is OK but you must have various insurance and multiple clients and consultants, or whatever excuses they use to discourage Independent Contractors, you can tell them you meet all their criteria because we handle those issues for you. Of course, you have to join us first.

Are you a good programmer?
Be the first to find the minor logic error on this page and you could win 1 Bonus Point (nominal value $1,000 but no cash value).
Offer good only for new members who join and perform billable work during Nov.-Dec. 2004.
 Note: the bug  makes too small a difference in the calculations to invalidate our overall better deal.