Hidden Pitfalls of the Freelancer Model

Companies need to be careful when using independent contractors that they engage for project work. Today’s transactional jobs, the gig-economy, and freelancers come with risk. We are currently in the biggest freelancer economy in history. Individual talent and experience are becoming the most sought after commodities in the market. This has always been the case, but it’s been much harder to quantify until now. The web-based business model will continue to bring consultants and clients together, with the ability to give better viable work options. Is the freelancer model sustainable? There are several companies out there that use a freelancer technology platform and more companies adopting and using this model every day. It is a great way for companies to find top talent for their projects and for individual consultants to find projects. Just be aware of how you are engaging with the worker.

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, that doesn’t mean that the worker qualifies as an independent contractor.

Take the right measures

Businesses have gotten into trouble for misclassifying workers as independent contractors even if they didn’t understand this was wrong. Some businesses purposely misclassify to get around paying taxes and providing benefits. It’s important to take measures to avoid misclassification, including not giving freelancers titles, company email addresses, and business cards. Independent workers should also be free to set their own working hours. They hold sole responsibility for getting work completed within established timeframes. One of the most important factors is the work to be done and how it relates to the business. Most freelance technology platforms don’t take this into consideration when bringing the parties together and classifying 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?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 this 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 IC vetting process. Contact ClearPath for a complimentary 1:1 review of your current worker status.

1https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee