IRS Increases 401(k) Limits

October 27, 2008 – 2:33 pm

Big Jump in 401(k) Contribution Limits for 2009 –

It is never too early — and we are never too young — to be contributing as much as possible to a tax-advantaged retirement account. For self-employed persons, an Individual 401(k) Plan is probably the best option. It provides the greatest savings potential with the lowest administrative overhead of all the available tax-advantaged retirement plans. In my opinion, every self-employed solo professional should be contributing generously into a 401(k) account.

Solo professionals who conscientiously max out their individual 401(k) accounts every year will be happy to learn that the Internal Revenue Service has significantly increased the 401(k) contribution limits for 2009.

This table shows the 401(k) contribution maximums for the years 2008 and 2009:

Annual Maximums	Year 2008	Year 2009
Elective Deferral (under age 50)	$15,500	$16,500
Elective Deferral (age 50+)	$20,500	$22,000
Total Contribution (under age 50)	$46,000	$49,000
Total Contribution (age 50+)	$51,000	$54,500
Compensation	$230,000	$245,000

The maximum elective deferral is the maximum tax-deferred amount that you can deduct from your gross wage (or gross earnings if you are self-employed) and contribute to your 401(k) account. In 2009 the maximum elective deferral increases from $15,500 to $16,500.

If you are age 50 or older, you can deduct an additional $5,500 catch-up contribution for a total elective deferral in 2009 of $22,000.

 If your 401(k) has a Roth option, you can contribute some or all of your elective deferral as after-tax dollars into a separate Roth account. Money you withdraw from your Roth account after retirement age is tax-free.

The maximum annual contribution limit is the maximum tax-deferred amount that your account can receive during the year, including elective contributions plus employer contributions (or profit-sharing contributions from your business if you are self-employed). If you are younger than age 50, the total tax-deferred contribution for 2009 is $49,000. If you are age 50+, the total is $54,500.

Tax deferred contributions to your 401(k) retirement savings plan in 2009 are based on the first $245,000 of annual compensation.

In an earlier post, I showed that a self-employed person would have to generate net revenues (gross revenues after expenses and payroll taxes) of at least $152,500 in order to contribute the 2008 maximum of $46,000 for an individual under age 50.

I then showed that a solo professional operating under the umbrella of Solo W-2, Inc. employment is able to contribute the same $46,000 to their 401(k) with net revenues of only $76,500. That, my friends, is just one-half the net revenues required by a self-employed individual.

Now, let’s see how the new limits for 2009 affect the 401(k) contributions of a self-employed person and a Solo W-2, Inc. employee.

The Amazing Solo W-2, Inc. $81,000 Advantage

Self-employed Person 

In order to contribute the maximum of $49,000 to an individual 401(k) account, a self-employed person under age 50 will have to generate net revenues (gross revenues after payroll taxes and expenses) of at least $162,000.

Here is why. IRS rules state that an individual may contribute 100% of gross wage up to the maximum allowable deferral, so a self-employed person may defer $16,500 from the first $16,500 in gross earnings as a contribution to their 401(k) account. The self-employed person’s business then contributes an additional $32,500 as a profit-sharing contribution.

IRS rules state that the profit-sharing contribution may not exceed 25% of a business’s total gross wages. Therefore, the gross earnings of a self-employed person must be at least $130,000 to justify a profit-sharing contribution of $32,500. It follows that net revenues (gross revenues after expenses and payroll taxes) will have to be at least $162,000 (see table below).

Solo W-2, Inc. Employee

A Solo W-2, Inc. employee under age 50 may also make a $16,500 voluntary deferral plus an employer contribution of $32,500. The difference is that Solo W-2, Inc. employees are not individually limited by the 25% limit on employer contributions the way self-employed persons are. Therefore, a Solo W-2, Inc. employee can contribute one dollar to his or her 401(k) for every one dollar of gross wage up to the absolute IRS maximum.

Indeed, the 25% limit on employer contributions does apply to all businesses, not just owner-only businesses. However, for businesses with multiple employees, the 25% limit applies to total gross wages across all employees. Therefore, employees who choose not to max out their 401(k) accounts create excess capacity that other employees can use to contribute more money faster to their own retirement accounts.

For this reason, a Solo W-2, Inc. employee can max out his or her 401(k) plan with gross wage of only $49,000 and that employee would require net revenues (gross revenues after expenses and payroll taxes) of only $81,500 to do so (see table below).

Individual Under Age 50	Self-employed	Solo W-2, Inc.
A. Gross Earnings / Gross Wage	$130,000	$49,000
B. Elective Deferral (included in gross)	$16,500	$16,500
C. Profit Sharing / Employer Contribution	$32,500	$32,500
D. Total Contribution (B + C)	$49,000	$49,000
E. Net Revenues Required for     Maximum Contribution (A + C)	$162,500	$81,500

The table above illustrates the amazing fact that a self-employed person under age 50 must generate a whopping $81,000 more in net revenues than a Solo W-2, Inc. employee before they can contribute the same $49,000 maximum contribution to their 401(k) retirement account.

A solo professional over age 50, can defer an additional $5,500 for a total elective deferral from gross wage of  $22,000. The table below illustrates that a self-employed person over age 50 must generate $75,500 more in net revenues than a Solo W-2, Inc. employee before they can contribute the same $54,500 maximum contribution to their 401(k) retirement account.

Individual Over Age 50	Self-employed	Solo W-2, Inc.
A. Gross Earnings / Gross Wage	$130,000	$54,500
B. Elective Deferral (included in gross)	$22,000	$22,000
C. Profit Sharing / Employer Contribution	$32,500	$32,500
D. Total Contribution (B + C)	$54,500	$54,500
E. Net Revenues Required for     Maximum Contribution (A + C)	$162,500	$87,000

Clearly, when compared with self-employment, employment by Solo W-2, Inc. represents a huge advantage — both in terms of reduced tax liability and increased retirement savings.

You will find a complete description of the Solo W-2, Inc. Roth 401(k) Retirement Savings Plan, including an explanation of the safe harbor contribution and employer match, in the Solo W-2, Inc. web site at: http://www.solow2.com/401kPlan.html.

James R. Ziegler, Ph.D.

Posted in Solo Retirement, Solo W-2, Inc. | 2 Comments »

A House of Cards

October 8, 2008 – 7:12 pm

The Rich Get Richer –

You know that saying, “The rich get richer and the poor get poorer?” I prefer this one, “Savers get richer and spenders get poorer.”

The way I see it, the biggest mistake anyone can make during an economic upturn is believing the good times will continue indefinitely. But, of course, the good times always end and they always end suddenly. Since the civil war era when economists first began tracking economic cycles, the U.S. economy has crashed by a greater or lesser amount every three to ten years.

Economic cycles always rise slowly and fall suddenly. They crash and people never see it coming. It’s a bit like building a house of cards. You never know with certainty just when adding one more playing card will cause the structure to fall, but you do know with absolute certainty that IT WILL FALL.

With absolute certainty! A house of cards WILL collapse. A bubble WILL burst and the economy will crash.

So why don’t more of us anticipate the inevitable and save our money? When we have cash, we spend it. Rather than investing our money, we create personal debt. We buy expensive things that get used up, wear out, depreciate, go out of style or become obsolete. We spend money on things that we cannot convert to cash when we need cash to survive during the inevitable downturn.

…Or when we need cash to invest in the many bargains that are available to us when the economy tanks. Bargains like cheap property and cheap stocks. Yes, we need cash during a downturn because that’s when investments are cheaper… and when the return on our investments will be greatest following the inevitable upturn that always follows a crash.

Case in point. The housing market is currently flooded with foreclosed homes that anybody can buy for pennies on the dollar — if they only had the money for a down payment. Foreclosed homes are being bought up by savvy investors who lived frugally and stayed liquid by saving their money during the good times. In my neighborhood, houses that sold two years ago for $750,000 are on the market for $500,000. Anyone who  has saved enough to put $100,000 down (that’s a whopping 20% down payment) on a $500,000 house stands to double their money in a couple years when the housing market recovers. What if the bank was willing to take a 10% down payment on such an under priced property? The savvy investor might easily quadruple his or her initial investment when the property sells in a few years during the inevitable recovery.

All Pervasive Greed

When will Americans learn that the consumption economy that is all the rage in our society is good for business — in the short term — and bad for everyone at every term, short and long? A consumption economy is driven by greed at every level of society and we have seen where greed has taken this country.

Greedy manufacturers and buyers of grossly obscene SUVs are to blame. Greedy mortgage companies and buyers of overpriced and oversized houses are to blame. Greedy stock brokers, securities repackagers and insurers of bogus security packages are to blame. Greedy, narcissistic, C-level executives and their sleazy bedfellows on boards of directors are to blame. Greedy politicians at every level — local, state and national — and their lobbyist cronies are to blame. Greedy big pharma drug pushers and greedy insurance companies are to blame.

It’s all about the greed… about “I want my piece of the pie before someone else gets it,” not, “How can we all profit by baking bigger pies?” It’s about “I want to shoot the last polar bear and hang its head on the wall of my den,” not, “How can we all profit by saving this magnificent top predator?” It’s about “Your money is my money; I just have to figure out how to get it,” not, “How can I help you be more successful so that I am also more successful?” It seems to be all about me, me, me. And greed.

We seem to be so “me” oriented that we can no longer see the “us” in financial transactions. We are so bound by the concept of greed that we can no longer grasp the difference between spending and investing.

Toward an Investment Economy 

In an earlier post, I wrote about the passing of Leonid Hurwicz. Professor Hurwicz shared a long-overdue Nobel Prize in economics for his work on mechanism design theory, which plays a pivotal role in contemporary economics, regulatory practices and political science.

Incorporating the principles of game theory, Hurwicz sought to establish rules for ethical economic transactions by which buyers and sellers, acting in their own self-interest, would maximize their gains to everyone’s satisfaction. You might say, Hurwicz sought to describe a world in which everybody wins.

Perhaps, the next administration will introduce our country and our society to the concept of empathy – the us factor — as a value that trumps narcissism and greed. Perhaps the next administration will adopt the principles of Leonid Hurwicz’s mechanism design theory as a doctrine that guides economic, regulatory and political decisions at every level of government — local, state and national — and at every level of society — personal, corporate and governmental.

Might an ethical and empathetic government be too much to hope for from a future administration founded on the principles of hope and change? Can an ethical and empathetic government create an ethical and empathetic society that values the us and invests in the future? That saves in the present and invests for the future?

How might we as a society manage the transition from a consumption economy to an investment economy; where people and companies save during economic upturns so they can invest wisely and weather the downturns; where people and companies buy only what they need and live frugally without incurring unmanageable debt?

I think an investment economy would be good for business and citizens alike by promoting social and economic stability and well-being. Leonid Hurwicz led the way. Now we need an administration in Washington D.C. that has the guts to design the economic incentives that will create an America in which everybody wins.

James R. Ziegler, Ph.D.

Posted in Solo Business, Solo Mindset, Solo Retirement, Solo W-2, Inc. | 1 Comment »

Are You Stacking the Deck in Your Favor?

September 11, 2008 – 6:18 pm

  

Know Your Competition –

Twenty-five years ago I was an independent sales rep. I sold multi-line telephone systems to small businesses. It was a time when electronic telephones were first hitting the streets and the many so-called “private interconnect companies” were making a killing by selling, installing and maintaining the new gadgets. Competition among companies and brands was fierce.

A good sales person might close only one prospect out of ten presentations. My “close ratio” was more like one in three. Why did I close more business? Because I understood my competitor’s products and capabilities better than my competitor’s own salespeople did.

Every time I won a deal I asked the buyer if I might have their old proposals. I studied those proposals and memorized my competitors’ features and benefits. I knew their competitive strengths (and how to minimize those strengths) and I knew their competitive weaknesses (and how to exploit those weaknesses to my advantage).

When I met with a prospect, I would qualify the decision maker with respect to which features he or she absolutely had to have, which features were “nice” but not essential and which features were simply unnecessary fluff. I made sure that my competitors’ strengths and my company’s weaknesses got moved as close as possible to the “fluff” column  and I made sure that my company’s strengths got moved to the “must have” column.

In other words, I stacked the deck in my favor.

I would help the prospect prepare a spreadsheet containing a list of every system’s features and every company’s capabilities. Then we would agree on a weight to give each item. The absence of a “Must have” item would automatically disqualify a vendor. The salesperson with the highest score — usually me! — won the bid.

Create Your Own Questions

A few days ago a prospective user of the Solo W-2, Inc. employer-of-record service sent me an e-mail that went something like this:

My name is [NAME] and I’m a [PROFESSION].  I’m interested in working with an employer of record, but have some questions about how it all works.

[Long bulleted list of very astute questions.]

I know this is a lot of information to ask, but I guess there are several companies that offer employer-of-record services, so I want to do my homework before I sign on with anyone!  I do appreciate your taking time to answer my questions, and I look forward to talking with you!

Thanks!

[NAME]
[PHONE NUMBER]

Of course, I answered every question. I even added a few points that were not covered in the sender’s list. I have every expectation that this person will select Solo W-2, Inc. — After all, Solo W-2, Inc. has the most comprehensive service offering at potentially the lowest cost. How could they NOT select Solo W-2?

But, that is not the point I want to make here. The point I want to make is about the questions. They were clearly crafted by a competitor hoping to expose the many frauds and also-rans out there who sell hard, offer little and charge too much.

So, my question to you is this: Can you create a long bulleted list of very astute questions that you can give to your prospective clients; questions that emphasize your strengths and expose your competitors’ weaknesses?

Can you imagine the leverage you would gain from such a list? Your list of questions would stack the deck in your favor by reinforcing your competitive strengths and exposing your competitor’s weaknesses without even knowing who your competitors are.

The Solo W-2, Inc. Questions

Here is a list of questions that I have prepared for independent professionals who may want to “shop the competition” for an employer-of-record service:

• Does your company have at least ten years of experience as a full-service employer of record?

• Am I restricted to only certain occupations or industries? Do you work with my profession?

• Can I work anywhere in the United States? Can I work internationally, provided the client has a presence in the United States?

• What kind of administrative support do you offer? Will I have a dedicated contact person, or would I call in to a general number and talk to whoever answers?

• Can I work for more than one client at a time through your company?

• Can I contribute income for payroll and benefits processing from multiple sources other than from clients that you have a contract with?

• Does your employment agreement contain a non-competition clause? If so, how does it restrict me?

• What are your fees, and what do those fees include?

• Do you have a referral program or other program that can easily make the effective cost of your service free or better than free?

• Do you provide contract review and negotiation for contracts that I procure through your company? May I review and approve all contracts for work I perform through your company?

• Do you have an online time and milestone reporting system? Can I create custom timesheets for each new client and project?

• Do you provide timely invoicing and assertive collections? What is your billing cycle?

• Can I invoice clients through your system for out-of-pocket expenses I incur on a project?

• Do you have a business expense and medical reimbursement program? What are the limitations or restrictions on reimbursed expenses? Do you offer online expense reporting?

• Do you offer the maximum GSA per diem rates for when I am working on projects away from my tax home?

• Do you have an auto allowance program. If so, how does it work? Do you have a lease-back program for expensive business-related purchases? If so, how does it work?

• Do you have an online reporting system that lets me review my outstanding invoices, manage my benefits and review various aspects of my account?

• Do you provide general liability and errors & omissions insurance with aggregate coverage of at least $5,000,000? Is the insurance free? Is there an additional cost for this much coverage?

• Do you provide long-term disability (LTD) income protection insurance? If so, is it guarantee issue? How much does it cost? How much is the maximum benefit? Is the benefit payout tax-free?

• Do you offer group health and dental insurance?  May I choose from HMO, PPO and HSA plans? What are the co-pays, deductables, annual out-of-pocket maximums and premium costs?  Is coverage unlimited or is there a maximum lifetime limit on payouts? How soon am I covered after I join your company? Is coverage national, international? Is the carrier a respected national company?

• Do you offer a 401(k) retirement savings plan?  Is it a Roth plan? Who is the provider? What is the most I could contribute this year if my gross revenues after expenses were $80,000?

• Are the answers to all these questions easy to find on your company’s web site?

What makes this list of questions so powerful is this: We don’t have to sell the benefits of Solo W-2, Inc. to independent professionals. Independent professionals sell themselves when they use this list to shop the competition. Armed with this list of questions, they can come to no other conclusion than to select Solo W-2, Inc. as their employer of record. There is simply no other rational choice.

James R. Ziegler, Ph.D.

Posted in Solo Benefits, Solo Business, Solo Marketing, Solo W-2, Inc. | 1 Comment »

Is Your Income Taking a Hit?

September 3, 2008 – 2:33 pm

Three Ways Consultants Suffer During a Downturn –

Solo W-2, Inc. is a consulting company. We employee consultants-at-large who, while operating like independent contractors, generate revenues for their personal Division of Solo W-2, Inc. in order to fund an executive-level employee benefits package and a highly tax-advantaged paycheck.

[Although tempted here, I won’t go into my usual pitch about why Solo W-2, Inc. employment is better than self-employment — you can read about it on this page in the Solo W-2, Inc. web site.]

And, while Solo W-2, Inc. consultants net higher total compensation and enjoy better benefits than self-employed professionals, they do take the same hits during an economic downturn. What are the hits? They are:

• Fewer contracts/gigs/projects/customers/clients

• Fewer hours billed per contract/gig/project/customer/client

• Lower negotiated billing rates

Do You Have to Take the Hit?

I still remember a passage from a sales book I read about twenty-five years ago. I do not remember the name of the book, but I do remember this one point: The best sales people make the most money during economic downturns.

You see, during upturns everybody and his uncle gets into the game. The market swarms with salespeople going after the low-hanging fruit. They are lazy and never make an effort to learn how to climb after the higher-hanging fruit. They lack marketing skills. They lack perseverance and they give up too easily. When the economy goes south, they bail. Those who stay in the game are the ones who know how to play it and, with less competition, they are able to score big.

Are you landing fewer contracts/gigs/projects/customers/clients?
This is a time to re-double your efforts. This is a time to invest in skills building. This is a time to develop relationships with potential customers, which will pay off when the economy rebounds, as it always does.

It is a bit like getting the flu. If you treat it like a terminal disease, you will stress and fret and feel miserable. If you treat it like the temporary setback it is, you will take your medicine, relax, recuperate and come out of it refreshed and eager to get back into the swing of things.

Economic downturns happen. Plan ahead to ride out the storm and make the most of your free time to retool and retrench. When you are self-employed, you are never unemployed; you are just between customers. Make the most of your non-billable time.

Are you billing fewer hours?
Look for opportunities to generate more billable hours from the business you still have. This one can really sneak up on you. Maybe you have the same number of clients but they are buying less. This is the time to get on the phone or drop by their office to ask for more business. If you have built strong relationships, your customers will stand by you.

Are customers pushing back on price?
This is a time to stress the value you bring to the table. This is a time to add more value to the service you already provide. Don’t take it for granted that you have to cut your prices to stay in business. This may be a good time to raise your rates. What if you were to increase your rates by 25% and loose 15% of your customers? How bad would that be? Not very!

Go After the Higher-Hanging Fruit

Economic downturns are a time for perseverance, ingenuity, courage and reassessment — and above all, economic downturns are a good time to learn how to climb the ladder to higher-hanging fruit.

James R. Ziegler, Ph.D.

Posted in Solo Business, Solo Marketing, Solo Pricing, Solo W-2, Inc. | No Comments »

The NLRB Curbs Temp Agency Intimidation

August 14, 2008 – 3:41 pm

Non-disclosure, Non-solicitation and Employee Compensation –

Staffing vendors - e.g., temp agencies, contract employment firms, so-called “consulting companies” and the like - routinely include clauses like the one below in their employment contracts:

1. Employee understands that Employee will have access to and contact with [Staffing Vendor’s] various clients as Employee performs services hereunder and Employee agrees to keep all information obtained or utilized in the course of performing its services strictly confidential.
    
2. Furthermore, Employee agrees not to solicit work or accept assignments from any of [Staffing Vendor’s] clients directly while engaged in services hereunder, or for a period of six (6) months after the termination of this agreement.
    
3. Employee also understands that the terms of this employment, including compensation, are confidential to Employee and the [Staffing Vendor]. Disclosure of these terms to other parties may constitute grounds for dismissal.

The first part of this clause is perfectly reasonable. After all, businesses do not want their employees, clients and vendors to disclose trade secrets to competitors and the public. Such intellectual property (IP) is confidential and proprietary, and its disclosure to a third party would be tantamount to theft. Therefore, it is reasonable that companies include a non-disclosure clause (NDA) in their contracts with employees, clients and vendors to prohibit one or more parties from disclosing trade secrets to a third party.

The second part is also reasonable. After all, the agency located the contract assignment for the contract worker and the agency is entitled to reasonable compensation for its efforts. Without such contractual protection, the worker could drop the agency and go to work for the client directly, cutting the agency out of the deal and denying them compensation for their efforts. Six months is actually very generous. Most agencies require a non-solicitation period of at least one year.

It is the final two sentences of the clause that pose an ethical and legal problem for staffing vendors and their temporary employees.

The Code of Silence

Staffing vendors have long enforced a code of silence around the terms of employment in order to intimidate their temporary employees and prevent them from revealing their pay rates to other temps or to the staffing vendor’s client.

Why would a staffing vendor be so hard-nosed about pay rates? Because staffing vendors do not want their temporary employees or their clients to know how much of the billing rate the staffing vendor is taking off the top. Staffing vendors typically make their money on the spread between what they bill the client and what they pay the contingent employee. The bigger the spread, the more money the staffing vendor makes.

How do agencies create a bigger spread? They do it by charging the client as much as the market will bear (increasing revenue) and by paying their contingent employees as little as possible (decreasing costs).

Staffing vendors generally terminate their contingent employees (for “lack of work”) when the temporary assignment is over, so there is little incentive to provide ongoing employee benefits such as health insurance and a retirement plan. When benefits are provided, it is not uncommon for the benefits to have a long waiting period before they kick in and for the benefits themselves to be considerably less that what the client company might provide for its own regular employees.

When you analyze where a staffing vendor’s profit comes from, it comes primarily from not having to pay for decent employee benefits.

Companies weigh the difference between the cost of a regular employee (wage + payroll taxes + benefits + cost of inflexibility) and the cost of a staffing vendor’s employee (wage + payroll taxes + benefits + value of flexibility + profit).

The client company then goes with the labor solution with the lowest perceived cost. If the staffing vendor is to be competitive, the perceived cost of a staffing vendor employee must be less than the perceived cost of a regular employee.

The Problem with Staffing Vendor Profits

If it is to make a profit at all, a staffing vendor must pay a low wage and/or offer few, if any, benefits. For this reason, staffing vendors will never be able to offer compensation and benefits to their temporary employees that are equivalent to the compensation and benefits of a regular employee. If you are a staffing vendor, paying wages at market rates and offering first-rate corporate benefits are simply incompatible with making a profit.

It makes sense that staffing vendors would not want their contingent employees to share information about pay rates and benefits with other temporary employees or with employees of the client company.

How embarrassing to the staffing vendor! The client might learn that they are paying more than necessary for under-benefited temporary workers and temporary workers might learn how much they are really worth on the open market.

But is it legal for staffing vendors to threaten their contingent employees with termination for sharing information with others about the terms of their employment?

The NLRB Intervenes 

Not any more, it isn’t, according to the National Labor Relations Board.

In a draft decision dated June 27, 2008, the NLRB has ruled that employers, specifically in this case a staffing vendor, may not take adverse employment actions against employees who breach illegally overbroad confidentiality clauses.

Northeastern Land Services Ltd. (NLS) is a temp agency. Its standard employment contract included the confidentiality language cited at the beginning of this post. In its ruling, the NLRB found that the final two sentences of the confidentiality clause are unlawful:

“Employee also understands that the terms of this employment, including compensation, are confidential to Employee and the NLS Group. Disclosure of these terms to other parties may constitute grounds for dismissal.”

Jamison Dupuy, a temporary employee of NLS, had a dispute with NLS regarding slow payment of his wage. While on assignment at the client company, Dupuy sought the client’s help in resolving the dispute. NLS summarily fired Dupuy for violating the terms of his contract’s confidentiality language by discussing the terms of his employment.

A Victory for Temporary Employees

In its ruling, the National Labor Relations Board ordered that Northeastern Land Services, Ltd. d/b/a The NLS Group, Providence, Rhode Island, its officers, agents, successors and assigns, to cease and desist from:

1. Maintaining, in its employment contracts or otherwise, an overbroad confidentiality rule prohibiting employees from disclosing to “other parties” their compensation or other terms of employment.
    
2. Discharging or disciplining its employees for violating its unlawfully overbroad confidentiality rule.
    
3. In any like or related manner interfering with, restraining, or coercing employees in the exercise of the rights guaranteed them…

The NLRB ruling is a victory for temporary employees in every state of the union. Henceforth, abusive staffing vendors will have to think twice before they attempt to interfere with, restrain or coerce their temporary employees from discussing their wages and conditions of employment with other parties.

Solo W-2, Inc. and Full Disclosure

At Solo W-2, we live and work by the following credo:

“The ONLY legitimate purpose of business is to promote the common good through commerce.”

Solo W-2, Inc. is committed to full disclosure in every aspect of its business and its relationships with its employees, clients and vendors.

Solo W-2, Inc. employment agreements are short, easy to understand and contain no language restricting your right to discuss any aspect of your employment with other parties. Never has, never will.

Solo W-2, Inc. invites employees who work with a third-party client under a Solo W-2, Inc. contract to participate fully in the contract negotiation process with their client.

Solo W-2, Inc. gives you a detailed cash flow report with every paycheck. The report details how every penny of your gross revenues has been allocated to fund your payroll and your employee benefits.

If you value full-disclosure and a completely open and supportive partnership with an organization that wants you to succeed in your solo profession, why not give us a call today? Solo W-2 makes working solo easy.

James R. Ziegler, Ph.D.

Posted in Solo Business, Solo W-2, Inc. | No Comments »

Preparing for The Longest Vacation of Your Life

August 8, 2008 – 10:34 pm

It’s Your Retirement –

Chances are, you typically devote more time and effort planning a two-week summer vacation than you will spend planning for your retirement — the longest vacation of your life.

For couples retiring at age 65, there is a 63% chance that at least one member of the couple will live to age 90 or beyond. Do you have enough money stashed away to pay for a vacation lasting twenty-five years — or longer?

Most retirees will need more than their previous annual salary every year to support them during a long retirement vacation. Why? There are many reasons. For one, most retirees will want to travel, and travel is becoming increasingly expensive. Second, you may want to pursue hobbies that are anything but cheap. You will no longer have a job to keep your mind occupied, so you will need to create activities that will satisfy and fulfill you. And, of course, your health will decline as you grow older, leading to expensive medical costs.

Now, add to this the relentless effects of inflation, insidiously diluting the value of your savings.

All of this means that your retirement savings must generate more money during retirement than your career did before you retired. Are you prepared?

Check Out These Handy Tools

Securian Retirement, the provider of the Solo W-2, Inc. 401(k) Retirement Savings Plan, has prepared a series of online workshops and financial calculators to help you make informed decisions about your retirement planning.

Online Workshops 

The online workshops cover the following topics:

• 401(k) Enrollment Workshop
• Planning for Life After Work
• Investing Basics
• Investing Strategies
• Money Management Today for Retirement Tomorrow

These narrated slide shows offer an excellent overview of retirement savings and I strongly recommend that you take the time to view them.

Financial Calculators 

On Monday August 4, 2008, Securian Retirement added several financial calculators to the participant section of SecurianRetirementCenter.com. Securian designed these “quick and easy” online calculators to assist you with your personal finances and encourage you to prepare for retirement.

These financial calculators will help you perform an initial assessment so you can begin to answer the questions about how you can afford to save for retirement.

The following calculators are provided:

Budget Basics
• What is my current cash flow?
• How much do I need for emergencies?
• Should I convert discretionary expenses to savings?
• Save now or save later?
• How can I retire debt faster?
• How will payroll adjustments affect my take-home pay?

Retirement
• What is my approximate, estimated Social Security benefit?
• How can your 401(k) pre-tax savings grow?

College Education
• How much should I be saving for college?

Investing
• What is the value of compound interest?
• How do taxable and tax-deferred savings compare?

Valuable Insights

Because of the valuable insights provided in the online workshops and financial calculators, this could be the most important blog posting you will read.

Remember, a self-employed person requires net revenues after expenses of more than $152,500 before they can load their individual 401(k) retirement account up to the IRS maximum of $46,000.

An independent professional employed by Solo W-2, Inc. requires only $76,500 in net revenues after expenses to set aside the same tax-deferred savings of $46,000.

Assuming you are self-employed and generating revenues of at least $5,000 per month, can you afford NOT to join Solo W-2, Inc.?

James R. Ziegler, Ph.D.

Posted in Solo Retirement, Solo W-2, Inc. | 2 Comments »

Amazing Mileage Logger and Report Generator

August 7, 2008 – 2:48 pm

GPS-based Mileage Logger –

A few weeks ago I posted an entry called Make the Most of High Gas Prices about the recent IRS increase in the standard mileage deduction from 50.5 cents per mile to 58.5 cents. I pointed out that if you are in the 30% tax bracket, the new mileage deduction will generate 17.55 cents a mile (or $17.55 per 100 miles) in direct tax savings.

Today, that post received a comment from a company that makes an amazing GPS-based mileage logger and report generator. The Mileage Logger by Vulocity is a really great tool that automatically records the destination, miles traveled and business purpose of every trip. If you are self-employed, almost any trip you make can have a business purpose. This nifty tool provides all the documentation you need to track your business mileage and justify your mileage deductions to an IRS auditor.

Service Description (from the Mileage Logger web site)

GPS Automatic Mileage Logger — One-time charge of $199.95

This GPS enabled device acquires the start and end location automatically and also calculates the distance traveled; your records are transmitted via the cellular network (GSM) and are accessible with your personal login information on our secure website www.mileagelogger.com. Just plug the Mileage Logger with the provided car adapter and the device will take care of the rest.

Airtime Service And Mileage Data Access — $18.95 per month

Simply select your trips and classify them as business, charity, commute, medical or personal. In addition, you’ll be able to insert comments for the purpose of each trip. Each record contains easy to read addresses and precise maps to help you remember the purpose of the trip. You have the option to export the records to Excel; and if you like, you can also merge, delete or add records.

Locate On Demand Service — $1.00 per month

You can opt to purchase this feature and locate your vehicle at anytime, anywhere; this can help you locate your vehicle if it is stolen or locate lost loved ones.

Panic Alert Service — $1.00 per month

You can opt to purchase this feature and notify your closest friends or family with a text message when you are in an emergency by pressing the side panic button; the emergency text message will contain your name, latitude-longitude and physical address; this feature can be very helpful if you or your loved ones are in dangerous situation. Limited to 20 text messages per month.

View a Demo

 The web site features an animated demo that shows how you can easily edit, merge and delete online records, update comments, print reports and export to Excel.

Is It Worth the Cost?

The initial cost of the Mileage Logger unit is about $200. That is the equivalent of 1,140 business miles if you are in the 30% tax bracket or 1,709 business miles in the 20% tax bracket.

You also pay a monthly service fee of $21. That’s the equivalent of 120 business miles (30% tax bracket) or 179 business miles (20% tax bracket) every month.

So, how much do you drive for business? If you are in outside sales, you could easily drive 1,500 to 2,000 a month visiting prospects and customers. You could pay for the unit in the first month and buy a year’s worth of service in the next month.

Even capturing an additional 500 business miles a month would easily justify purchasing a Mileage Logger.

My friends and family know that I have a deep and abiding passion for Argentine tango. I dance tango five or six days a week for a total of about 20 hours a week. While most people are sitting on their couches watching TV in the evenings and weekends, I’m dancing Argentine tango, moving beautiful women through space in an intimate embrace. Every month, I drive over 1500 miles getting to and from private lessons, group classes, practicas and milongas (dance parties) throughout the San Francisco Bay Area.

Imagine, if I were a tango teacher, how much I could save in taxes if I wrote off my tango mileage! At a 30% tax bracket, I would save $263 a month and more than $3000 per year. The tax savings could pay for my next two trips to Buenos Aires!

James R. Ziegler, Ph.D.

Posted in Solo W-2, Inc., Solo Write-offs | No Comments »

I’m Self-employed. My Client Says I Need Workers Compensation Insurance.

July 28, 2008 – 9:28 pm

Your Client is Misinformed –

Businesses with more than a minimum number of employees (the minimum varies by state from 2 - 5) must provide workers compensation insurance coverage for all employees.

Business owners are exempt from workers compensation coverage, regardless of the number of employees. So, by both measures you are exempt from the requirement for workers compensation coverage - your business has fewer than two employees and you are the business owner.

Several factors may be behind your client’s request that you carry workers compensation insurance. I’ll list three here.

• Your client is concerned about the consequences of your getting hurt on the job.
• Your client thinks that your business has multiple employees.
• Your client prefers to work with larger vendors and is stacking the deck against you.

Client Fears Consequences of Your Getting Hurt

Individual states have enacted workers compensation insurance laws ostensibly to mitigate the need for expensive lawsuits by employees against their employer in order to obtain compensation for lost wages and medical treatment following an on-the-job injury. However, the real force behind workers compensation legislation was the need to limit the cost to employers of defending themselves against personal injury lawsuits. Employees who file a workers compensation claim give up their right to sue their employer.

A company’s workers compensation insurance typically does not cover the employees of outside vendors whether that outside vendor is a self-employed person or the employee of a major corporation. The injured employee of an outside vendor should file a workers compensation claim against his or her own employer.

However, there is a rub. Because they are exempt from the requirement for workers compensation coverage, a self-employed person has no recourse but to (1) absorb the costs of medical care and lost income or (2) sue the client company to recover those costs.

A third recourse scares the dickens out of employers - the self-employed vendor might seek reclassification as a regular employee of the client company through the courts, through the IRS or through the state’s department of employment. The consequences of reclassification in terms of legal costs, back taxes, penalties and interest can be staggering.

Companies want to reduce these liabilities by making sure that their contract workers are covered by workers compensation insurance.

Client Thinks Your Business Has Multiple Employees

The Internet is a great equalizer and any business with a professional web site can look like a major contender. Your client may not realize that you are a one-person operation, in which case you can simply point out that you are exempt from workers compensation insurance.

But coming clean can cut both ways. Established businesses want to do business with other established businesses, and wary HR departments and purchasing departments are likely to balk at doing business with an individual who lacks the accoutrements of a legitimate business.

Client is Stacking The Cards Against You

Companies that engage the services of owner-only businesses may have those individuals reclassified as employees of the company if they fail the sniff test as an outside vendor. Precisely for this reason, many companies require that all owner-only businesses present proof that they are an established business. If, indeed, the company is stacking the deck against owner-only businesses, the company will undoubtedly require that all vendors demonstrate that they have at a minimum:

• Coverage for workers compensation insurance and unemployment insurance
• Valid business license
• Federal tax identification number other than the owners Social Security number
• Separate business bank account
• General liability insurance of at least $1 million
• Letterhead, business cards, brochures and other marketing collateral
• References from several clients

Solo professionals who can prove that they are a legitimate business are much less likely to be rejected by potential clients.

Solo W-2, Inc. Gives Your Client Proof

Solo W-2, Inc. is an established business with more than ten years experience as an employer of solo professionals. Solo W-2, Inc. provides your clients with all the proof they need to accept your status as the regular employee of a fully compliant business.

Solo W-2, Inc. covers its employees with workers compensation insurance and unemployment insurance. Your clients can feel secure that any claims for workers compensation or unemployment insurance will be against Solo W-2, Inc. and not against your client in the event of an on-the-job injury or extended period of unemployment. Providing further assurance for your Solo W-2, Inc. clients, we insure your clients for general liability with aggregate coverage of $5,000,000.

The next time your client says you need coverage for workers compensation insurance just say, “No Problem! My employer is Solo W-2, Inc.”

James R. Ziegler, Ph.D.

Posted in Solo Business, Solo W-2, Inc. | 1 Comment »

Does Your Mutual Fund’s Manager Have Skin in the Game?

July 23, 2008 – 5:26 pm

Misaligned Interests –

Imagine this. You own a chain of Mocha Joka coffee houses. One day, while visiting one of your shops, you observe Jack, the store manager, drinking from a Starbuck’s coffee cup. You ask him what he is doing and he says that he never drinks Mocha Joka coffee, “Why,” he explains, “should I drink Mocha Jocha when I actually prefer Starbucks?”

Who could possibly fault you for questioning Jack’s commitment to the success of Mocha Joka, and who would fault you for firing the disloyal twerp right there on the spot?

Now imagine this. Your solo business owns an Individual 401(k) Retirement Savings Plan. You notice that the funds in your account portfolio seem to be underperforming. Wanting to understand why, you download a Morningstar report where you learn that none of the managers of the funds in your portfolio actually invests in his or her own fund.

Who could possibly fault you for questioning each manager’s commitment to the success of their fund, and who would fault you for dropping those funds from your investment portfolio right there on the spot?

Surely, you want your funds’ managers to have some skin in the game. Of course, they do take a piece of the action when the fund grows, which provides an incentive to perform well. But wouldn’t it be reassuring to know that the fund’s manager believes enough in his or her own fund to invest a little equity in it?

Last month, Morningstar released the results of a study on manager ownership for 1,066 major funds. This Morningstar article, entitled “Does Your Fund Manager Feel Your Pain?” summarizes the findings.

The study reveals that less than one-half of the managers of U.S.-stock funds have any of their own money invested alongside shareholders. In other words, “their own financial interests are not well-aligned with shareholders’.”

It would be so very interesting to plot the degree of ownership by these mutual fund managers against an independent measure of each fund’s success. I bet you would find a positive correlation, don’t you think?

Of course, many factors may contribute to managers not investing in their own funds. For example, the Morningstar article points out that “managers often have access to cheaper, tax-advantaged versions of their strategies, such as separately managed accounts, and ownership of those investments isn’t disclosed to the SEC.” I would also suggest that fund managers have access to better performing individual securities than the mutual funds they are charged with managing.

Nevertheless, quoting again from the Morningstar article, “If managers aren’t willing to put a significant portion of their own money into their mutual fund, why should you?”

Solo W-2, Inc. Monitors the Performance of it’s Funds

I meet regularly with Solo W-2, Inc.’s financial advisor, Wayne C. Deutscher, Chartered Financial Consultant (ChFC), to evaluate fund performance in the Solo W-2, Inc. 401(k) Retirement Savings Plan portfolio. When necessary, we swap out underperforming funds and replace them with funds that are performing well. We want to ensure that the funds in the Solo W-2, Inc. 401(k) Retirement Savings Plan generate investment growth that is both high and secure regardless of the level of fund manager ownership. And that, after all, is the real goal, isn’t it?

In addition to helping me perform my fiduciary responsibilities as President of Solo W-2, Inc. and trustee of the Solo W-2, Inc. 401(k) Retirement Savings Plan, Wayne provides free financial assistance to Solo W-2, Inc. employees. We encourage all of our solo professionals to contact Wayne Deutscher regarding any aspect of their Solo W-2, Inc. 401(k) Retirement Savings Account. Wayne is also available to answer questions and provide general advice regarding the personal finances of Solo W-2, Inc. employees.

I encourage any and all solo professionals to contact Wayne Deutscher for financial advice. However, isn’t it nice to know that as an employee of Solo W-2, Inc. Wayne’s advice would be free.

James R. Ziegler, Ph.D.

Posted in Solo Benefits, Solo Retirement, Solo W-2, Inc. | No Comments »

Is Business Looking up for Independent Contractors?

July 17, 2008 – 4:58 pm

Five Straight Months of Contract Labor Growth – 

A recent article in the New York Times reports, “Despite modest job gains, June marked the fifth straight month in which small employers hired more independent contractors in order to reduce costs from payroll taxes and benefits.”

That is good news for solo professionals. SurePayroll, a payroll-processing firm for companies with fewer than 100 employees, reports, “there were 3.54 contractors for every 100 employees working for small businesses in June.”

Nevertheless, I doubt seriously that the reason why small businesses have increased the number of contractors to 3.4% of their workforce is “to reduce costs from payroll taxes and benefits.”

The common perception that companies use independent contractors “to reduce costs from payroll taxes and benefits” is misleading. Solo professionals are very aware that they must factor into their billing rates the costs of their own payroll taxes and benefits, so companies that engage independent contractors do indeed pay those costs, albeit indirectly, as part of the billing rate they pay to solo professionals or to the agencies that supply them.

It is not so much that companies are saving money by hiring contractors but that they are gaining flexibility and expertise that is not available in the company’s permanent workforce.

To place the cost of paying an independent contractor in perspective, we should appreciate that the billing rate of a solo professional is fundamentally the same as the loaded labor cost of a regular employee. The loaded labor cost is the gross wage plus the following costs:

• Employer’s share of payroll taxes
• Administrative overhead
• Facilities overhead
• Commercial insurance
• Health insurance
• Retirement savings plan
• Benefits and perks
• Training
• Any additional costs associated with the individual’s business.

When a company engages the services of an independent contrator, that company is simply transferring the labor load — and the responsibility for paying it — to the independent contractor. If the company is purchasing the contractor’s services through a staffing vendor (contract employment agency, temp agency, recruiting firm, consulting firm, etc.) it is also paying for the staffing vendor’s profit margin, which is typically 20% or more of the billing rate.

Another reason that businesses engage independent contractors is risk aversion. “Hiring full-time employees is like getting married,” SurePayroll President Michael Alter said in a statement. “Hiring a contractor is like dating. There’s less risk in making a big mistake when you are dating than when you tie the knot and get married,” he said.

For whatever reason companies opt to engage the services of contract workers, it should be quite clear from this discussion that it is NOT “to reduce costs from payroll taxes and benefits,” because the real cost of an independent contractor is never less than, and is frequently more than, the loaded labor cost of an employee.

Solo W-2, Inc. Preserves and Enhances Your Earning Power

The very low cost, direct savings, tax-advantaged earnings and convenience of employment with Solo W-2, Inc. preserve and enhance your earning power as a solo professional. And now you can take full advantage of the “boom” in contract employment by joining Solo W-2, Inc.

As an employee of Solo W-2, Inc. you will enjoy the freedom, flexibility, independence and tax advantages of self-employment coupled with the comprehensive employee benefits of corporate employment. Solo W-2, Inc. offers solo professionals The Best of Both Worlds!

James R. Ziegler, Ph.D.

Posted in Solo Benefits, Solo Business, Solo Pricing, Solo W-2, Inc. | No Comments »