This document discusses co-employment risk and outlines ProKo Consulting's new model for contracting with professional consultants. [1] It explains that co-employment can still exist even if a contractor is paid as a W-2 employee through a third party. [2] ProKo now acts more as a talent brokerage, entering into contracts with clients and then subcontracting work to vetted independent consultants. This clarifies relationships and provides necessary insurance coverage while allowing consultants to maintain their independent status for tax benefits. The new model is seen as a win-win that provides higher caliber talent for less cost through low brokerage fees.

1. Contracting with
Professional Consultants:
Information & Education
All rights reserved ProKo Consulting LLC, 2012 1

2. Co-Employment Risk
What It Is
 A corporation may be liable for misclassifying a worker as an
independent contractor when the worker is being treated like an
employee.
Why You Should Care
 Government audits are increasing; fines are huge
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 Misclassifications often lead to class action lawsuits ($$$$)
 Companies are scared and often over-compensate by making
independence hurdles ridiculously high (the compliance process)
 Misinformation and lack of understanding is resulting in
excessive service fees and poorly mitigated risk
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3. Co-Employment Risk
Misconception
“We use a contingent workforce management company so we
have mitigated our risk.”
Reality
 Co-employment can still exist even though the independent
contractor is paid as a W-2 employee through a third party.
 H
How a person i paid i i l
is id is irrelevant. It d
t depends on who controls h
d h t l how,
where and when the work gets done!
 A professional consultant directs their own work including what needs
to be done, when and how.
 Setting up a W-2 relationship does not protect the corporation as
well as a written contract between the parties.
 A W-2 contractor can still be found to be an employee of the
corporation under the joint employer theory of liability.
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4. Professional Independent Consultants
Professional
Contractor Freelancer
Consultant
P ōK consultants are sole proprietors
PrōKo lt t l i t
 Are not “between jobs”; consulting is their job
 Have extensive training and experience
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 Are hired to diagnose and/or solve specific business issues
 Determine how, when and where to do their work
 Provide their own tools templates and methodologies
tools,
 Are their own small business
Not ll
N t all consultants are created equal!
lt t t d l!
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5. Professional Independent Consultants
Misconception
“Consultants don’t care how they are paid as long as they are paid.”
Reality
 Professional independent consultants want to stay independent to take
advantage of significant tax and retirement benefits!
 SEP-IRA significantly better than a 401(k)
• Higher ceilings ($50,000 vs. $17,000)
• Contributions lower their adjusted gross income which lowers their tax
 For tax purposes professional consultants want a 1099 not a W-2
1099, W2
“Friends don’t let friends W-2!”
“F i d d ’t l t f i d W 2!”
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6. The New PrōKo Model
PrōKo is more of a talent brokerage than a consulting firm.
 Agency representation mitigates risk
 The corporation determines which consultant is the right fit
 Corporation enters into a contract with PrōKo Consulting LLC
 PrōKo sub-contracts the work to the preferred consultant
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 This clarifies relationships as well as provides necessary
insurance coverage.
 PrōKo Consultants are world-class
 Have at least ten years of experience in their field
 Have worked for large, “gold standard” consulting firms and
Fortune 500 companies
 Are screened and vetted by PrōKo
 Extremely low brokerage fee of 5-10%; not a typical agency
mark-up
 Enables the client to afford higher caliber talent
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7. Precedents for the PrōKo Model
Misconception
“All consultants need to bill through our contingent workforce
partner.”
Reality
R lit
 Other professional services are likely handled on direct contracts
 Outside counsel (attorneys)
 Consultants hired through large firms are often subcontractors
 PrōKo Consultants are more like attorneys
 They direct their own work
 Provide their own tools, templates and methodologies
 Specialize in particular areas of expertise
 Perform work for more than one client
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8. Who Likes the New PrōKo Model?
 Professional Independent Consultants
 Get to maintain their sole proprietor status for significant tax deductions
 Project Managers
 Higher caliber talent for the money
 HR
 A source for high-quality professional consultants
 Legal
 Better mitigation of co-employment risk
 Procurement
 Same services for less cost due to extremely low mark-ups
The new PrōKo model is win/win situation!
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9. For More Information
 www.ProkoConsulting.com
 White Papers
 Mitigating Co-Employment Risk: W-2 vs 1099
 The Philosophy of “Sweet Spots”
 Conversation (888-627-7656)
 Liz Steblay, Managing Officer
 Henry Telfeian, General Counsel
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