From withholdings to workers’ compensation, unemployment benefits to paid time off, it’s important to set up your freelance workers as independent contractors.
“Employers want to make sure they are not unknowingly hiring an employee,” said Jeffrey Stewart, an attorney at White and Williams LLP in Upper Saucon Township, who specializes in employment and labor law.
It all comes down to who exercises control, he said.
The IRS has tests to help companies determine if they’re hiring a freelancer or if they’re actually making a direct hire so problems can be avoided for everyone.
Consider these questions and steps when creating employment agreements to hire a freelance or independent contractor.
- What is the need and what tasks do the contract state?
- Is the task a distinct project?
- Are you [the employer] comfortable with the arrangement?
- Can the person doing the work report both profit and loss?
- Who provides the equipment for the work to be completed?
- Is there training involved, and who is responsible for providing it?
- Who is paying the taxes?
Once those questions are answered:
- Independent contractors are paid on a tax 1099 form basis.
- Document payments made to contractors.
- Get a W9 form completed by the freelancer at the beginning of the relationship.
“Some states are starting to regulate the gig economy,” Stewart said.
In September, 2019, California Law AB-5 Worker Status, [Assembly Bill 5] was passed and restricts the number of stories reporters and journalists may sell to a single publication during a 12 month period. After the limit, they must be considered employees of the publications.
Other professions such as doctors, accountants, travel agents and fishermen are exempt from the California “gig worker” law.
“This tells me that a lot of people have a lot of interest in this topic… what is true today may not be true two years from now,” Stewart said.