Employers hired at a robust pace last month, according to the Bureau of Labor Statistics. Which means unless you’re offering top dollar and a boatload of perks, you may not be able to hire the people your company needs.
You can hire independent contractors—freelancers—as an interim or even permanent solution. The Department of Labor issued worker status regulations earlier this year.
So far, no plaintiff has been able to convince a court to toss them. These regs may not survive the incoming administration, but this isn’t our concern today.
The IRS, of course, has its own long-standing test for determining a worker’s status.
What do you owe independent contractors?
Let’s say, for the sake of argument, the individuals you’ve hired are actually contractors under both the DOL and the IRS’ test. What do you owe them? It’s increasingly more than money.
Some employers cheat employees, and likewise, some payers cheat contractors. Contractors could shoulder the cost of a lawsuit and sue these unscrupulous payers. Or they could prevail upon their state and local legislatures to enact Freelancing Isn’t Free legislation.
This is exactly what’s happening. Three states—California, Illinois and New York, plus New York City—have enacted a Freelancing Isn’t Free law. You’re covered in California if your contract is for more than $250; in Illinois, the amount is $500 or more; and in New York state and New York City, the amount is $800 or more.
Since more states and municipalities will hop aboard the freelancing-isn’t-free bandwagon, your contracts should meet these minimum standards:
- Each party’s name and mailing address is listed.
- An itemized list of all services to be provided by the freelancer, including the value of those services and the rate and method of compensation, is included.
- The date on which you will pay the contracted compensation or the mechanism by which the date will be determined is stated.
- The date by which the freelancer will submit a list of services provided to the payer to meet the payer’s internal processing deadlines is stated.
Freelancers should be paid according to the terms of the contract. If a contract doesn’t specify a payment date, payment is usually due no later than 30 days after the work is completed. Once work has begun, you can’t require that freelancers accept less pay or provide more goods or services than originally contracted.
As a rule, contractors shouldn’t work alongside employees, and their time is their own, provided they fulfill the terms of the contract. Upshot: Unless a contractor is onsite and behaving in an incredibly obnoxious fashion, tell your managers to back off.
Other considerations
Contractors don’t go on the payroll, and if you pay them at least $600 in cash, you must provide them with Form 1099-NEC and file the form with the IRS by Jan. 31.
But some employee-like hassles remain:
- You may need to report your contractors as new hires. This grid, courtesy of the federal Office for Child Support Services, will help you determine whether you must report contractors as new hires.
- You may be required to withhold child support for contractors. The OCSS has a grid for this, too.
