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With an agency, you need to consider the following:

1. As you note, they take a percentage of your billable rate, sometimes as high as 50%.

2. In most cases, you need to be a W-2 employee in relation to them and this means you get all of the drawbacks of being an employee without any of the benefits (agencies normally do not offer vacation time, health insurance, profit sharing, stock options, or other perks of employment).

3. You are regarded, in a sense, as an "asset" of the agency. In other words, the agency has a contract with the customer-company and that contract will prevent the company from hiring or contracting with you directly without paying the agency a "non-circumvention" fee. (I know - we have represented many such agencies over the years and protecting this area is always one of their foremost concerns). Thus, your future opportunities with the company you do work for are made dependent on the company's willingness to pay the agency, e.g., a fee equal to six month's of your services before they can do anything with you directly, making you far less marketable.

4. Though they classify you as an employee, some agencies insert a clause in your written contract stating that you get paid only when they get paid. This is plainly illegal if you are their employee but they do will sometimes do it anyway. In that case, or in the case where you are a contractor in relation to them, the effect of such a clause is to put the compensation for your services at collection risk. That is, the agency might decide to string you or stiff you even after they get paid on account of your work for the customer. None of this would happen, of course, if you were allowed to contract directly with the customer.

All this and more is pretty negative for the tech service provider and leaves him vulnerable to getting used and manipulated in various ways. Of course, agencies will vary and some are better than others but inherent problems remain even with the best of them. In a sense, the tax laws have made them a toll gate between you as a service provider and your true customer and there is no way of getting to your customer without paying a price of some kind, one that would not need to be paid but for the arbitrary quirk in tax laws.




> you need to be a W-2 employee in relation to them

So if you start your own "placement agency" and hire yourself as a W-2 employee, and then sell your company's and your services, the IRS will be happy? How is this different from just incorporating yourself?




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