I thought that this article might help explain things to those less experienced in these matters. Those of you who are old pros, please excuse the repetition (but it might make a good refresher). This is very simplified and ignores rate caps, benefits and other deductible expenses, unemployment and state taxes, and other complications, and it's approximate; its purpose is just to explain the basic concept.
The 7.65% Social Security tax (FICA/OASDI/MediCare) is paid by both employer and employee. Self-employed pay both halves (15.3%). This is why you need to quote a bit higher rate to get the same amount if you're an Independent Contractor (whether incorporated or self-employed).
It so happens that 7.65% is very close to 1/13, so here's an approximation.
If you're an employee, for every $13/hr. of your rate, the employer and employee halves of the SS tax are $1/hr. each, so your employer is paying $14/hr., and you're really getting $12/hr. But you have to pay income tax on the $13/hr.
If you're 1099 (self-employed), you need to quote $14/hr., because you have to pay both halves = $2/hr., leaving you the same $12/hr. To make it work the same way as for employers, you get to deduct the employer half of the Self-Employment tax, or $1/hr., so again, you pay income tax on $13/hr.
If you're incorporated (or using a W-2 umbrella), it works like both of the above examples combined. Normally you're an employee of your corp., so again, you need to quote $14/hr., your corp. as employer will pay $1/hr. out of that, leaving you a $13/hr. wage as employee, you pay $1/hr. out of that, leaving you the same $12/hr. And again, you pay income tax on the same $13/hr.
If you're working through RMPCP on our 1099, we bill the same $14/hr. and you get the same $12/hr. That's why our 15% "umbrella fee" does not compare with the 3-5% fee charged by other umbrellas, because ours includes that $2/hr. you'd have to pay anyway, and other umbrellas' quoted fees do not - apples vs. oranges. Thus, our real fee is 15% - 2/14 = about 0.7%. And because we handle the $2/hr. difference instead of you, you only have to pay income tax on the remaining $12/hr., not $13/hr., so our fee is effectively more like 0.4%. So that's why some people were confused and think we charge more, but actually we charge less.
Again, this analysis skips the complications mentioned above, but it should explain the situation clearly enough for a starting point. Now you know why you need to quote about 8% more as an IC to get the same amount, and why this doesn't cost the broker/client any more than they'd pay as an employer (in fact, possibly less). That's also why when you're working through RMPCP, you can quote about the same rate you'd normally quote as a 1099/corp. and still get the same amount left; we effectively don't add anything to the cost.
Another way to compare this is the general rule of thumb that seems to be floating around, that a good broker will take 20% of the bill rate if you're 1099/corp. or 30% if you're W-2. This assumes that the broker found you the client, as usual, so it includes their commission. Again, this is only approximate.
If the broker is taking 20% and giving you 80% on 1099 or corp-to-corp, they're taking a 20% commission. After you pay your 15% SE tax (or your corp and you split 15% in payroll taxes) of your 80%, that's 15% * 80% = 12%, thus a total of 20% + 12% = 32% taken out, leaving you 68%. We're assuming no factoring for 1099/corp as they probably don't pay you until the client pays them. OK, maybe they're doing some invoicing and maybe some factoring, worth about 1%, so their commission is effectively about 19%. So, if you're an IC and the broker takes 20%, you're really getting 68% of the bill rate after SS taxes.
If you're W-2, they're taking 20% + 10%, about 4% of which is their factoring fee for paying you regularly and (hopefully) unconditionally as their employee, and about 6% of which is the employer half of FICA etc., leaving 70%. Your employee half of about 6% then leaves you with 64%. That's 4% less than the 68% above, the 4% being the factoring fee. Some of the 4% is probably not just for factoring but to compensate the broker for the extra legal requirements of being an employer. So as an employee, with the broker taking 30%, you're really getting 64% of the bill rate after SS taxes.
If you're working through RMPCP, there's no commission of course if you find your client yourself, in which case you get 85% of the bill rate - essentially the same 12/14 you'd be left with after paying the SS taxes as in the first analysis above, whether you're W-2, 1099, or corp. If one of our other consultants finds the client for you, your fellow consultant (not RMPCP) gets a 10% commission (which declines to 5% after 3 months and 0% after 6 more months), so you get 75% (with automatic raises to 85%). If we finally find and hire a good marketing/sales partner which finds the client for you, their commission is 10% more (20% declining to 10%), so you get 65% (with automatic raises to 75%). So at worst case, your 65% compares very well with the 64-68% above, and then you get automatic raises as our commission declines, while typical brokers' commissions hang on forever.
And of course many brokers take far more than the 20%/30% of the bill rate above. I had one once that took 35% (instead of 20%) on a 1099, and I've heard even worse.