Hiring freelancers comes with a lot of benefits – you save money on things like vacation and health care, you pay only for the amount of work you need, and you pay less in taxes. If you know you need help, but aren’t sure you have enough work or budget to add a full-time employee to your staff, then finding a good freelancer could be just what you need.
The number of freelancers working in the United States just keeps growing. Analysts predict that 40% of the workforce will be made up of the self-employed by 2020.
If your business is considering freelancers, there’s some basic knowledge you need to make sure the relationship is good both for you and the freelancer you hire. One of the first things to understand is how to stay on the right side of the law.
Why Misclassifying a Contractor is a Big Deal
For you to legally enjoy the benefits described above, your hire has to meet the qualifications the law requires for independent-contractor status. If you call someone an independent contractor while treating them like an employee, you’re putting your business at risk of back taxes, fines and back wages. If the IRS suspects you intentionally misclassified your employee as a contractor to save money, you could even face up to a year in prison.
Don’t shoot yourself in the foot. Take a few minutes to understand what it legally means to hire a freelancer so you don’t end up hurting your business in the long run in order to save a few bucks now.
How the Law Defines Independent Contractor Status
The legal definition of an independent contractor is largely determined by the level of control a business exerts over the hire. Generally, you can’t set limits on where and when a freelancer works for you or how they go about completing the work.
The IRS lays out three main categories to help you identify if a worker is an employee or an independent contractor:
When you hire a freelancer, you’re expected to give them the freedom to do the work you’ve hired them for in the way they see fit. That includes things like deciding for themselves the hours they’ll be working, where they’ll do their work from, and the timeline for completing a project.
That doesn’t mean you can’t ask for work to be completed by a certain date – usually the kind of thing covered in a contract you work out together – but the key is that it’s something the contractor plays a role in deciding. Managing their calendar, choosing a workspace and setting daily hours are all up to them. This ensures freelancers can work for multiple clients at once. Anyone hiring a freelancer should expect they will have other clients and have to manage the work they do for others as well as for you.
The flip side of the freedom established in the first category is that freelancers are responsible for their own expenses. This means they usually buy their own supplies – computer, software, pens and pencils, phone, internet, etc. They also negotiate fees for services rather than expecting a set, consistent salary (although retainers are common).
Type of Relationship
This category is a bit harder to clearly define than the others, but the gist is that freelancers typically shouldn’t be hired for long-term roles considered a “key aspect of the business.”
Ask yourself: If a freelancer you hired for this role chose to end the relationship, would you realize your business was dependent on the work they provided to keep running? If so, you probably should instead hire an employee that has the expectation of working in that role long term.
How to Get It Right
To avoid being on the wrong side of the legal line, your best bet is to look for people who understand the difference between freelancer and employee status and are happy with the former. Negotiate assignment details in advance and lay them out in a contract with clear language to avoid any confusion.
And always respect their autonomy. If they don’t want to take your calls on the weekend, or even answer right away on a weekday, that’s their choice. If they prefer to work hours that seem weird to you or do all their work from a loud coffee shop, that’s up to them, too. As long as they meet the terms you agreed to, then the process they use to get there is up to them.
The tradeoff you get for not having to provide benefits or a consistent salary is the loss of some control. But if you take the time to find a freelancer whose work you like and whose professional style seems a good fit for your needs, you shouldn’t need much control.
Trust them to do their job. They wouldn’t last long at freelancing if they weren’t good at it.
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