The number of Freelance professionals working in the U.S. continues to increase. According to a 2017 survey jointly conducted by Upwork, the online marketplace that connects prospective employers with Freelance professionals in search of project work and The Freelancers Union, a not-for-profit organization that provides advocacy and health insurance to Freelance workers, 36% of the U.S. labor force derives at least some portion of annual income from Freelance work assignments. The survey authors predict that by 2024, the percentage of Freelance workers in the U.S. will grow to include 50% of adults employed full-time.
1099 or W2?
If your organization plans to increase staffing, make it a priority to understand worker classification rules. The Internal Revenue Service and state Departments of Revenue are watching and you don’t want to run afoul of the law. There are three factors that help employers determine whether their staffing plan points to hiring a Freelance contract worker who will receive a 1099 form in January, or a part-time or full-time employee who will receive a W2 form in January. If the answer to one or more of the questions below is yes, your new hire would be classified as a Freelance contractor.
1. Is there an expectation that the worker has the right to simultaneously provide similar services for other organizations?
- Does the worker have a business website and/or social media accounts
- Does the worker have a business bank account
- Does the worker have his/her own business cards and other marketing materials
- Did the worker form a legal entity for his/her business (LLC or corporation)
- Can the worker choose when and where the work is performed
2. Does the worker use his/her own equipment and office supplies when at work?
3. Must the worker invoice your organization to receive payment for services rendered?
Project specs in writing
Whether expressed in a formal contract or in an email, a smart Freelancer will commit to writing all duties that a client requests. The project deadline, milestones and total fee should also be included.
According to the U.S. Copyright Office, the general rule is that the person who creates a work is its legal author and owner. The exception to that rule is “work made for hire,” i.e., a creative project or work assignment that is specially commissioned by the hiring company and produced by a non-employee. When project work qualifies as a work made for hire the commissioning party, i.e. the company, is considered to be the work’s author and legal owner.
It’s worthwhile to include in any Freelance work contract a clause that describes the work produced for the company by the Freelancer as work made for hire, to make clear the ownership of any text, body of work, or images produced by the Freelancer.
Project payment schedule
The client and the Freelancer will discuss and agree to the project fee and its format, whether flat fee or hourly rate. Especially in a flat fee agreement, clients are often asked to pay the Freelancer some portion of the fee in advance of beginning the project work. When that advance is paid, it is expected that the Freelancer will immediately begin the project work.
Interim payments may be tied to the achievement of agreed-upon project milestones, or to an agreed-upon timetable. Final payment is made at the conclusion of the project, typically within 30 days of completion.
The Freelancer should specify if credit card payments are accepted, or if checks are preferred. How the check should be made out must be specified and tax ID information must be provided when the amount of the project will reach or exceed $600, per IRS rules.
To sum up, the Freelancer will draw up a contract that will include all important points of the work agreement. Ideally, the contract that will be signed by employer and Freelancer and each will retain a copy (but an email will suffice in most cases).
- Duties for which the Freelancer will be responsible
- Project milestones
- Project deadline
- Work made for hire agreement
- Project fee total amount and the payment schedule
The employer will send to the Freelancer a W9 form, which will provide the information necessary to create the 1099–MISC form that is required when payments to the Freelancer will reach or exceed $600 in a given year.
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Photograph: Perry Mason (CBS-TV Season 1, Episode 9, November 16, 1957) l-r Raymond Burr (Attorney Perry Mason), Pierre Watkin (Judge Keetley), Carol Leigh (Veronica Dale)