The real difference is that it allows you to cut all the paperwork out of your life. There are many people who want the perceived safety of W2 and/or don't want

The real difference is that it allows you to cut all the paperwork out of your life. There are many people who want the perceived safety of W2 and/or don't want the hassle of running their own business. Umbrella Companies make it very easy to do so. The umbrella company basically deducts payroll taxes, benefits expenses and any other benefits and pays the employee. For the majority of contractors this model would be easier. However granted it's not for everyone, and it isn't supposed to be either. An interesting side effect of having one or two good umbrella companies, could be that people who don't normally contract might start preferring working through them. These wouldn't necessarily have to work on regular hourly contracts either, but could do monthly fixed invoices that would map to a regular salary. SF for example has lots of people who move from one job to the other several times a year. Why not take control of your own benefits program. As an entrepreneur myself I would probably prefer working with employees through something like this than having to deal with it myself. Paying an invoice is a hell of a lot simpler than having an employee. There are other unexplored issues. How do you deal with stock options and vesting for example. I'm not too familiar with the legalities of that.