I am considering MBO as a "freelancer." I haven't signed up yet, as I'm still investigating all the pros and cons for using such a service for my chosen industry (which, by the way, is in government proposal support).

However, regarding the comment that MBO seems unprepared and lacking in answers, I disagree. I spent almost two hours on the phone with an MBO associate and I asked some very complex questions (and I do know what questions to ask and am familiar with the laws and regulations in my industry). He answered all of them to my satisfaction.

I had more questions and concerns later, and those were also answered. I was pleasantly surprised at the expediency and thoroughness of their communications.

The jury is still out for me on this MBO decision but I am leaning strongly toward them. They seem to remove a lot of headaches I experience as a "freelancer" at a cost lower than what I have to pay to do the admin/financial work myself (in terms of time AND expense).

Lastly, I agree that comments--good, bad, indifferent--should not be made anonymously. I can't take comments seriously from behind the mask of anonymity. It's just too easy to make unsubstantiated, or outright false, statements when you don't hold yourself publicly accountable.

AJ DePriest
Technical Writer/Editor

MBO Partners simply tries to make you think you are independent, but they set rules around you to function, how to get paid, when you will get paid, charge you more if something is late, etc.

Also, they try to sell you on benefits you can get through them that an individual you cannot get. Well, they actual give you nothing of benefit. Let's face it, they are in business to make money for themselves, not you and treat you as if you are employee.

This year they changed the benefit packages offered, after they sent out the plans. Changed the plan without telling thier "customers" and then tell you "too bad."

I would find another way to handle this via a payroll service or small local CPA or a software package, not MBO.

What MBO does not realize is I was about to take my company of 30 employees to have them handle the back office stuff, but they way they treated me as an individual - not a chance.

With all due respect, companies like MBO are little more than temporary staffing agencies. They take their 30% cut off the top and offer unsubsidized benefits, which most of their employees can't begin to afford.

Anyone who claims they are self-employed and can't keep track of their invoices, receipts, and estimated taxes deserves to work for them. For myself, I am truly self-employed and have been so for nearly 20 years. I prefer to stay that way; and would prefer it also if MBO would stop poaching on my current clients with misleading fear-mongering marketing campaigns.

I'm sure the MBO marketing staff will post a few more anonymous favorable comments for us all to read. What they've failed to mention is that many of the true freelancers in the business also maintain studios of their own, with their own equipment and licensed software. Yes, I will step in a client's studio, but I also bring lots of work home - a win/win as they don't need to make room for me on their production floors and I can work independently in a room that has proper lighting.

I won't be buying into the MBO marketing campaign; I already gladly pay my accountant to handle my finances.

I just finished a gig at a commercial production house  in Venice.  I agreed to the gig before I was told that I had to go with MBO or Incorporate.  My accountant said it wasn't worth it to incorporate so I sucked it up and went with MBO.  Big mistake.

MBO stinks!  They are a parasite who offers our industry NOTHING; they're just taking advantage of companies' fear of the IRS.  I've seen the smart, hardworking guys who live paycheck to paycheck flabbergasted when their take home pay is 50-60% of what it used to be.  This makes me very angry.  These freelance gigs are unstable so we need the extra money for times when we can't find work.

What amazes me is how few Digital Artists are willing to stand up for themselves against this exploitation; we work on movies where underdogs rail against big, evil bad guys but when faced with a similar situation in real life we just quietly take it.  Yes this is real life, not the movies, but I really hope we're not so fearful of losing our jobs that we lose sense of what's right.

If you want to join my anti-MBO linkedin group, it's right here:

http://www.linkedin.com/groups?home=&gid=2762465&trk=anet_ug_hm

And I'm open to other ideas for working against these payroll companies.

Let's organize and stand up for ourselves.

Eric Rosenthal

Charlatan.

Don't post your name on your posts if you're with an EOR.

They can and will fire your from their "company" if they don't like what you're saying.

I whole heartily agree with the below comments.

"1) If you work on premises.. even for one day, you are a CONTRACT employee, not a freelancer and should be incorporated into the employer's payroll. Not MBO's (a 3rd party service).
2) If you work on premises you are entitled to state law breaks and OT pay after 8 hours.. none of this flat rate nonsense."

UNLESS YOU ARE YOUR OWN S-CORPORATION AND AN EMPLOYEE OF YOUR OWN S-CORPORATION.

MBO is merely a payroll/staffing service trying to make a buck offloading employer corporate taxes in what should otherwise be the responsibility of the employer hiring the artist and extracting a profit fee from the artist rather than the employer by doing so. Doing so in this manner the employing firm avoids costly payroll and uit taxes as well as adhering to state overtime regulation. The service MBO provides is at a detriment to the artist who could otherwise setup an S-corp and associated payroll through a 3rd party payroll service (for $30-$40 or less per month in essence making themselves an employee of "their own" corporation) thereby taking advantage of all the the deductions and unemployment afforded to the artist. Instead, MBO get's these deductions and the naive employee of MBO gets screwed in addition to perpetuating the underground employment tacts in this industry. Instead, in MBO's scenario, the artist is classified as an employee of MBO and what's even laughable is that the artist is paying a fee to be an employee of MBO without technically working for them. In this "Third Option" according to MBO you already are working under the auspices of your own company. You just don't have one i.e. (i.e. an S-Corp). Does MBO adhere to overtime regulations in the artist's said state? Does MBO pay their employees overtime? Let me guess...MBO lets the artists negotiate their rate thereby absolving themselves all-together from the employer employee relationship.

My advice to artists: Classify yourself as an employee under W2 when you work for a company or setup an S-Corp and you thereby become an employee of your S-Corp (W2) yet you maintain your 1099s when you are employed by said design/vfx shops. That's it. Those are the only two options. If you want to stay 1099 without the S-Corp do so until you get audited or the company insists that they won't pay you as 1099 because your not S-Corp because they fear they will get audited.

Let me reiterate however, if you don't choose to be self employed and you have no intention of going into biz for yourself, anytime a company hires you to work on premises at their direction using their hardware they HAVE to pay you as an employee. As such they need to abide by all overtime regulation within their state. No day rate. Hourly rate period and you are entitled to unemployment in this regard.

A couple of things to note here.

This article was written with a very favorable light on MBO, but I feel most people who were forced to sign up with them feel quite differently about them and in general have not had a great experience.

I think some people are a bit bitter about being forced into signing up with a payroll company because the post production companies they work for were not handling their own taxes correctly. So ok kind of a bummer but not the end of the world. The %5 fee is quite high and as far as I was able to get from MBO not really the only money they extract. For example, although really we are all still freelancers on paper we are now a bit of a mystery. We are employees of MBO but we have to pay both employee and employer payroll taxes. However, because technically we are employed by MBO they are the ones who at the and of the year will be writing the employer side taxes off, not you. Now although I have tried I have not been able to get a clear answer on this from MBO and this leads into my next major issue with them, they feel very shady and are rarely able to answer even the most basic of questions about your money and where it is and what it is going towards.

The other big problem here is that MBO understanding nothing about our industry. And my feeling is they are super happy to be getting all this new business and jumped right into the deep end of the pool without bothering to do research and gain an understanding of what it is exactly we do.

They seem very unprepared for all these new people that have had to sign up. The user interface is terrible and basically provides almost no feedback on what taxes are being taken and for what. When you call or email to clarify the person on the phone is really not able to provide that information either. I have had more than one instance where some random amount of taken out and when I went to click on it to figure out what it was I got a technical web error along the lines of "sorry link broken" or "sorry please contact system admin"

I and others have asked certain questions repeatedly only to again and again receive answers that beat around the bush but never answer the question.

quite frankly it feels as if they doing as little as they can to actually run a company and fix these problem but as much as they can to squeeze out as much of your money as they can until they get shut down.

My .02 about the MBO issue. Don't pay these people 2-10% (depending on the company) of your day rate to cut you a check and send you a W2 at the end of the year.

Liz said it herself:
"If you are a true freelancer in this industry and want to stay self-employed, the time is coming where you’ll need to raise the bar for running your business. You’ll need to pass muster and convince your studio clients that you aren’t class action lawsuit bait, or an audit waiting to happen. And that means setting up a real company, paying all the taxes, setting up a streamlined and efficient process for invoicing and collecting from your clients, and covering yourself with worker’s comp, business insurance -- the works."

Its really not that hard to Inc. there are websites like LegalZoom that will help you incorporate into an S Corp for a fraction of what a lawyer would charge. Open up a business bank account and your bank will often offer their own payroll service at around $30/month so then you're own employer/employee.
If you work with the same handful of companies, ask them what they require as far as Workers Insurance and find the best annual rate.

Dear Anonymous, and other readers:

an invitation for people to sign their posts is appropriate, and individuals are free to decline my invitation. On LinkedIn, people discuss using their real names, and I think that brings a dimension of accountability and context. It is up to each person here to choose.

I am not signing my posts in an attempt to impress anyone. I sign for transparency, and as a pledge that I publicly stand by the truth of what I am writing. That’s powerful stuff, and I think most readers appreciate it.

Back To The Focus

Like any advanced technology, our business takes complex things and makes them simple. However, “under the hood,” the mechanisms that generate such elegant simplicity are not easy to explain.

What MBO Partners offers is a kind of technology platform. It resembles an operating system and hardware platform, married together and radically advanced ahead of anything else available. It is a legal and financial infrastructure, it is an accounting system, and it is a service platform with a strong human support element. It was custom developed to fundamentally improve the way self-employed individuals can choose to conduct business and manage their careers in the United States. We have been evolving this platform over 24 years of continuous history, and in recent years have brought development focus to serving different types of businesses. A few years ago our focus was building out the business to accommodate individuals who earn revenue via commission rather than billing for Statement of Work based projects. Currently, among other things, we are learning and working diligently to adapt our systems to meet the acute needs of small businesses in the animation and VFX industry.

There are futurists, such as the analysts at the Institute for the Future, who describe a coming emergence of an infrastructural platform that single-person micro-businesses will be able to plug into and gain the resources and competitive advantages of very large Fortune 500 style companies. They will be able to work through this universal adapter that can connect entities of any size for doing business, and be afforded the institutional business and financial support that big businesses enjoy.

We are that futuristic platform, only with a performance track record that is as old as many of the self-employed customers we are now serving.

What Are The Options?

In a world without the MBO Partners model, artists in this industry have two choices: jump through the hoops to become a compliant business and be your own employee, or become someone else’s W-2 employee. The first option is a lot of work, and tends to be expensive; to be audit-proof and reasonably lawsuit-resilient, you really need to be paying yourself on a W-2, with all that entails. To be the kind of business a studio will want to risk being in relationship with, you need to be covered with appropriate insurances and other protections.

The second option tends to result in a loss of freedom, as you are no longer freely self-employed, and may tend to result in less income, but let’s not argue that from an ivory tower. If you think you can get a job with an employee wage that will be as lucrative as your annualized take home today, then don’t argue with me; go get it!  

Neither option is all that great. If they were great options, you would all be in one of these two situations.

But you aren’t. Generally speaking, most of you are getting paid as 1099 freelancers. This places you in limbo between those two legal options (many not by choice, but that is the way the industry grew up).

If working through a staffing company was a great option for you – as Anonymous asserts – then you would be doing it. You can go do it now.

Try it. Report back to us once you’ve tasted it, and let us know how that’s working for you. If it is working well for you, then I strongly encourage you to stick with it. Post back here and tell your colleagues which firm you recommend they use to operate their career through, end to end, continuously.

There are thousands of staffing companies and payrolling companies out there that would be happy to take your business, and their margin. We value our friends in the staffing business and often collaborate with them; there are many fine companies out there you can choose from.

You can choose that employment option, or alternately look for a full time W-2 staff job at a studio.

You can also choose the business route, go set up your corp, cut yourself a W-2, cover yourself with worker’s comp, general liability, errors and omissions, and unemployment insurance.

Back to the Third Option

We are here to give you a third option, and one we feel is superior for the individual who is truly self-employed.

No one should be feeling forced to do anything (except straighten up and fly right). If you feel forced into our program, please call us and talk to a manager so we can help set things straight. If you don’t want to be in our program let us know so we can help you transition out.

You are the master of your ship. Shop us, shop your other options, and make your choices. I am not here to hypnotize you. As I’ve said before, we are only interested in long term relationships. Onboarding is expensive, and we would rather not take all that time in education and set up if someone isn’t going to stick around.

So . . . Is It Legal?

Most of the comments here question whether our business is legally possible and compliant with various laws of this country.

It is.

Can I easily explain how that works to a reader audience? Apparently not!

I’ve written about the concept of how each self-employed individual opens up their own division of MBO Partners, how their business center has earnings from various sources flowing in, and expenses flowing out, and how the individual hires and pays their own self (and if they choose, others) based on the profitability of their business center. It is a structure that emulates self-incorporation and paying yourself on a W-2. You are the Executive of your own business center under the MBO Partners umbrella.

That explanation makes it clear to some of you how this can work, legally. Others may need additional explanation and an opportunity to have specific questions and points of law explained. For that explanation, please call us at 1-800-220-0469 during normal business hours.

As a company that does business with the federal government as well as with Fortune 500 companies, we frequently must endure deep scrutiny and jump through the hoops of due diligence. We also field calls from the accountants of many of our individual customers. We are proud of the system we have created, and the value that it brings to the individuals we serve. Your questions are welcome; I just ask you to take us up on the offer to actually learn more from our team, directly.

We do our best to ensure that every individual brought into the program understands, as deeply as possible, how the service model works. Because every individual’s situation is actually unique, their business through us will be affected in unique ways, so this conversation happens one-on-one, in what we refer to as an Enrollment call. Our standard Enrollment call is anywhere from 45 minutes up to two hours long. Often, multiple calls are required. It’s a crash course in taxes, accounting, risk, insurance, etc. Every answer generates new questions, and sometimes the caller’s eyes glaze over and we have to continue the conversation later. Our Enrollment Managers are skilled in assessing what information an individual is starting with at the beginning of an Enrollment Call, and throughout the discussion, they customize the explanations as needed to bring clarity. Sometimes the individual brings their accountant along, too. If I transcribed in writing one of these detailed explanations, it would be ten to twenty pages of explanation, highly customized to that person’s situation, and not very useful for posting here.

If you are interested in learning how this works, please pick up the phone and contact us for an Enrollment Call. Give us the opportunity to explain how the accounting works, and answer absolutely every question you have. We don’t bite! If you don’t feel you are getting clear answers, then escalate your question to a manager, or write to me at lgreene (at) mbopartners.com and let me know.

Thousands of people have read this article on AWN, and I invite each and every one of you to call us for a free, one on one explanation. It’s actually a great deal of business information, available without charge, and offered whether you choose to use us or not. So far, we haven't been seeing any elevation in call volume, so that tells me most of you have gotten your questions answered.

Direct Answers to Anonymous Questions: 

On Income Level:

I did not say a wage employee earning $62k a year can double their income by joining MBO Partners and opening a business division. I stated a true fact that the average MBO Exec in the animation and VFX industry is on track to bring in $125k in earnings (annualized) and that this is roughly double the median annual average employee wage for the field according to BLS data. This is correlation, not causation. Our MBO Exec program is for highly talented, highly compensated business owners. It is not for wage employees. I brought up the income discussion in part to answer allegations that MBO Partners is contributing to some kind of underground sweatshop economy. That is simply not the case. Any rate pressure artists may be experiencing in this industry is unrelated to the impact of our program. In addition, we earn our fee as a percentage of Associate revenue, and therefore we are invested in seeing everyone who participates in our program running successful, profitable businesses. We have an online seminar that teaches independent consultants some methods for calculating appropriate bill rates, and describes how bill rate differs from pay rate. You can access the hour long video here, or view just the slides here. I can develop one more customized for your industry, as this was presented for business and IT consultants, but you’ll get the idea. We would like to see every individual in our program thrive.

On Taxes Adding Up:

As for the sum of the employer-side and employee-side taxes withheld in our program exceeding the self-employment taxes a sole proprietor would pay, this is technically correct. The additional amount Anonymous is referring to is for unemployment insurance and worker’s compensation. To operate as a fully compliant, responsible business in this industry, and eliminate needless risks for the studios, your business should be covering you with worker’s compensation and you should be paying yourself as a W-2, withholding taxes for yourself and covering yourself with unemployment. Otherwise, you put the studios at risk, and they may not be keen to engage you. Regulatory agencies want to see every person on a W-2. Studios engaging freelancers are exposed to the very serious risks of lawsuits from contractors not covered by worker’s comp and the risks of a freelancer’s unemployment claim triggering reclassification and audits. Worker’s comp cases and unemployment claims are the leading audit triggers. The nature of this question indicates to me that most likely, Anonymous is not paying his or her self as a W-2, and by extension not paying worker’s compensation or unemployment. The studio is exposed to a host of risks, and this kind of practice is one of the reasons the industry has a problem today.

Self-employed individuals can choose whether to operate on their own or go through MBO Partners, but the responsibilities of running a business, avoiding/surviving audits, and protecting the clients you do business with, don’t really change. At least in our program, the cost of the worker’s comp is secured at our large group rate, and far less expensive than obtaining it as an individual.

Regarding Who Is "Allowed" To Operate A Business:

We are indeed marketing our services to this industry, however we are not telling anyone that they cannot operate as a legally compliant business. Our standard presentation makes this clear, as does the Three Models of Working article. However, regardless of how compliant an individual is, there may be factors in the work relationship that jeopardize an independent professional’s status. Our option is intended to help freelancers stay free. Your clients – the studios you are seeking work at – bear the legal and financial risk (it's not fair, we know) and therefore hold the prerogative for setting the standards for how they wish to operate. They must assume responsibility for their business practices. It is up to them to decide who to hire and how to pay each hire (as long as it is lawful), and they have their own attorneys and advisors. Ensuring that all artists are paid by a compliant vendor, on a W-2 with taxes withheld, and are covered by appropriate insurances, is one approach. That compliant vendor may be your corporation, or ours. The era of small businesses operating fast and loose, without business insurance, without worker’s comp, and without proper tax payments, is coming to a close. Because the regulatory agencies would rather not bother tracking all these small businesses down to collect their dues, they are going after the studios.

Next Steps?

If you are a wage employee, tell the studios you want to work that way and they need to pay you as a wage employee. If you are with MBO Partners currently, we can present your case for you and talk to the Studio if you'd like our help.

If you are a true freelancer in this industry and want to stay self-employed, the time is coming where you’ll need to raise the bar for running your business. You’ll need to pass muster and convince your studio clients that you aren’t class action lawsuit bait, or an audit waiting to happen. And that means setting up a real company, paying all the taxes, setting up a streamlined and efficient process for invoicing and collecting from your clients, and covering yourself with worker’s comp, business insurance -- the works.

We humbly offer you a third option, one that I hope you’ll take the time to learn about.

Still Got More Questions?

If you have more questions, or are concerned about your personal situation, then call us during business hours at 1-800-220-0469. Real humans, standing by to talk to you.

Sincerely,

Liz Greene
Director of Marketing
MBO Partners
http://creative.mbopartners.com
http://mbopartners.com
1-800-220-0469
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