1. Why I Created PrōKo Consulting
By Liz Steblay, Founder & Managing Officer
Through my own experience as an independent consultant several things came to my attention
including an understanding of co-employment risk and how corporate America has been
impacted by it:
 Labor audits by the government on the possible misclassification of employees
 Class action lawsuits by contractors against corporations who were treating them like
employees but without the benefits (e.g. Microsoft in the late 1990’s, FedEx a few years
ago)
 The rise of contingent workforce management companies with “vendor management
solutions” – software systems and processes that handle the compliance process and
vendor management for corporations.
Because of these factors it’s getting harder and harder for independent consultants to contract
directly with corporations… practically all Fortune 1000 companies require consultants to go
through a third party to mitigate their co-employment risk.
The problem is that the proverbial pendulum has swung too far… companies are so fearful of a
bad audit or worse, a class action lawsuit, that they have essentially outsourced the solution to
staffing firms or contingent workforce management companies. It is in the best interest of these
staffing companies to pay all their contractors and consultants on a W-2 basis because they can
charge a significantly higher service fee than if they simply do the invoice processing of 1099
subcontractors – for example, a 15% markup versus a 1% markup. (On one PrōKo contract this
difference was $140,000!) This outsourcing of the compliance process is obviously not in a
corporation’s best financial interest but they think they are taking care of their co-employment
risk.
The problem is that they aren’t really mitigating their risk. The third party companies claim that
they payroll independent consultants (pay them on a W-2 basis) to mitigate the risk but this is
actually a misinterpretation of the law. The law does not state that that if a contractor is an
employee of a third party that co-employment is mitigated. What is important is who controls the
work of the person – a contractor can be paid as a W-2 employee of a 3rd party but if the client
corporation is still dictating when, where, and how the work gets done, there is still a co-
employment issue! The PrōKo model does a better job of mitigating co-employment risk by (a)
representing highly experienced professional management consultants who clearly direct their
own work and (b) teaching our consultants about co-employment risk so they can actually help
the client to mitigate it!
All that being said, however, the real reason I started PrōKo is that the current third party
compliance model is really bad for the independent consultant. Because the third parties want

2. to make more money (higher service fees) they have put all kinds of hurdles and requirements
in place that make it practically impossible for an independent consultant to qualify as an
independent contractor and avoid being paid on a W-2. Most consultants don’t understand the
nuances of co-employment law, or how these third party agencies think, so when they answer
the compliance questionnaires they get “dinged” in at least one area (probably more). Most
compliance processes have a “one strike and you’re out rule” which means the consultant has
to be paid on a W-2 through the third problem. THIS IS WHERE IT BECOMES BAD FOR THE
CONSULTANT. Besides the flexibility, most independent consultants like being in business for
themselves because it’s profitable for two main reasons.
1. Consultants can get a higher billable rate as an independent than if they work for or
through another firm. Most staffing firms or boutique consulting firms mark-up the
consultant anywhere from 20-40%. Why give up a significant part of your earnings if you
don’t have to?
 Example: PrōKo recently placed a consultant at a Fortune 500 company for four
months with a budget of $123,000. If the consultant did this contract through a
firm with a 30% markup, she would earn $86,100; by staying independent and
being represented by PrōKo she will earn over $115,000. In hourly terms,
through a traditional staffing model, this consultant would have been paid
$108.50/hour; through PrōKo she is earning $147.25/hour.
2. Consultants get to take advantage of several tax deductions as a sole proprietor. This
can be significant! Three years ago I did my taxes using TurboTax two different ways –
once as a sole proprietor and once as if I had been paid on a W-2 through a third party.
The difference was $8,000 – I saved $8,000 in tax by being a sole proprietor instead of
an employee (i.e., by being paid on a 1099 basis versus a W-2). The following year I
asked my accountant to do the same analysis. As an employee contributing to a 401k,
my effective tax rate would have been 16.9%. As a sole proprietor contributing to my
SEP-IRA (and not even maximizing my possible contributions) my effective tax rate was
11.6%. If I had maximized my retirement account contributions (which for me that year
would have been $49,000) my effective tax rate would have been only 9.8% after
deductions. In other words, if I had maxed out my SEP-IRA contributions and other
deductions, I would have saved over $17,000 in taxes.
I founded PrōKo Consulting because the current third party staffing and compliance situation is
bad for the consultant and expensive for the corporation. I thought to myself, “There has got to
be a better way!” and indeed, there is.
Why I Created PrōKo Consulting v3.docx