There are freelancer platforms that have been around for some time which have been helpful to millions when looking for a babysitter, dog walker, plumber or electrician. But what about the platforms that are popping up more and more for professionals? In this ever-growing and changing gig economy, companies need to be careful not to misclassify a worker as an Independent Contractor when they should be classified as an employee.
We are currently in the biggest freelancer economy in history, with individual talent and experience becoming the most sought-after commodities in the market. It is a great way for companies to find top talent for their projects and for individual consultants to find projects. But transactional jobs, the gig-economy, and freelancers come with risk. Companies need to be vigilant when using independent contractors that they engage for project work.
The web-based business model will continue to bring consultants and clients together, offering better, more viable work options. Just be aware of how you are engaging with the worker – you might be fooled by how easy it appears to be. You still need to be diligent in asking the question, “Will the worker be classified as a W-2 or 1099?” This is an important question to answer before you engage the worker, as the wrong answer could cost you a lot of money!
Just because the freelancer technology platform offers the ability to pay the workers as an independent contractor/1099, doesn’t mean that the worker “qualifies” as an independent contractor. Some online staffing and human cloud-based platforms warn clients that worker classification is the client’s responsibility. Freelancers may be classified as Independent Contractors or as Employees. Because only the Client knows the requirements of their project and how they plan to work with the Freelancer, it’s the Client’s responsibility to classify Freelancers correctly.
Businesses have gotten into trouble for misclassifying workers as independent contractors, even if they didn’t understand this was wrong. However, some businesses purposely misclassify to get around paying taxes and providing benefits. It’s important to take measures to avoid misclassification, including ensuring the worker is using their own tools and equipment, have agreed-upon project-specific milestones and deliverables outlined in a Statement of Work (SOW), demonstrate investment in their business, and have multiple customers. Independent workers should also be free to set their own working hours. They hold sole responsibility for getting work completed within established timeframes and must not be directed or controlled on how to accomplish this.
One of the most important factors is the work to be done and how it relates to the business. They must be performing unique services, unlike full-time employees, and the work being performed by the worker must not be integral to the business (meaning essential for the business’s revenue stream). Not all freelance technology platforms take this into consideration when bringing the parties together. Some freelance platforms are now including an Independent Contractor vetting process, but some do not. The onus is on the company that is engaging the worker.
It is important that you understand independent contractor laws so you don’t unintentionally violate them. To learn more about what defines an employee versus a freelancer, as well as important information on independent contractor laws, be sure to read this article from the IRS’s website, Independent Contractor (Self-Employed) or Employee?1 These are just the IRS’s rules. Other federal agencies and each state agency may have different rules.
If your organization needs help navigating IC Compliance, ClearPath Workforce Management risk mitigation services bridges the gaps to enable compliant engagement of highly skilled talent in the freelancer community. ClearIC™ can automate and simplify the Independent Contractor evaluation process, while mitigating your risk, via our full-service Independent Contractor vetting process.