Are you an independent contractor in the video business? There are tax advantages to being a freelancer and for the employer it is less costly than withholding taxes and paying for payroll-related expenses such as workman’s compensation, state and federal unemployment taxes, health insurance, vacations, pension plans, etc.
The IRS would like to reclassify independent contractors as employees of the businesses it audits. They make more money from employees than from contractors. Independent contractors or freelancers can deduct business expenses from their income. The IRS gets money from payroll withholding which is something that affects all employees.
When Is An Employee An Employee?
The US Labor Department this week gave some detailed guidance for determining whether a worker is an employee or an independent contractor. The 15-page document outlines some court decisions and past precedents for determining the difference, and offers scenarios in which workers in similar jobs, from nurses to cake decorators might qualify as one or the other. It also suggests that the independent contractor classification has been used a bit to liberally as companies re-organize and streamline costs. This document is not a directive and the courts are not bound by it.
Control Your Own Work
The most fundamental difference between employees and independent contractors is that employers can tell their employees exactly what to do and how to do it. The hiring company can give you detailed guidelines or specs for the results they expect from you. But exactly how you accomplish those results should be entirely up to you.
These guidelines help establish that you are the one in charge:
- Don’t request or receive instruction or training on how to do the job from the hiring company.
- The hiring firm does not prescribe your working hours, although the company may give a deadline for completing the work.
- You decide where to do the work, unless the work must be performed on the hiring company’s premises.
- You decide whether to hire assistants to help you and if you do, pay and supervise them yourself.
- Keep a separate bank account for your business.
- Maintain any required licenses or permits for your profession.
- Pay for business insurance.
- Do not accept any benefits from the company hiring you such as retirement or health insurance benefits, paid vacations, etc. Charge your clients enough to purchase these benefits on your own.
- Listings in business directories
- Website promoting your services
- Business cards, stationery, signs advertising your business
- Membership in professional organizations
- Advertisements and marketing materials sent to prospective customers
Ability To Make Profits Or Suffer Losses
Independent contractors or freelancers can either make a profit or a loss. When there is no possibility of having a loss, you are more likely to be an employee rather than a contractor. So if you have recurring business expenses like buying and owning equipment, paying rent, paying other freelancers or assistants, these show that you could have a loss if you do not get enough paying jobs.
To Look More like an Independent Contractor
Have More than One Client
If you are only working for one company, you are probably an employee. But if you are marketing your services, can and do accept jobs from a wide variety of companies or individuals, you are more likely a contractor. The government will generally accept you as an independent contractor if you have several clients at the same time. If you have just one main client, try to take part of the year and work for other clients during that time.
Some of these will make you look more like a contractor:
Contracts or Written Agreements
These documents can go all long way to proving your are an independent contractor, but they are not always appropriate. Freelance camera gigs, for instance, often do not work with contracts. Many small jobs like transfers or duplication do not typically use contracts. Nor do legal video depositions. But if you are producing business videos you should always use contract. See Contracts For Business Videos.
Work Someplace Outside of Your Client’s Office
This shows that you are controlling the work rather than under the client’s control. If you are producing a business video, much of the shooting may be done at the client’s business. But some of the script writing and all of the post production could be done elsewhere. So IRS would not rule this as an employee situation.
Whether you are hiring freelancers as independent contractors or are yourself a freelancer, this is an issue you will want to follow. There could be major economic repercussions. Check with your accountant and follow the IRS website to keep up to date.
The California Labor Commission recently determined that an Uber driver was an employee, not a contractor. This could be very expensive for Uber who has already had to re-imburse one driver for expenses. They would also have to withhold payroll taxes and other fees. The driver stands to win rights to benefits enjoyed by employees such as vacation time, health care and retirement benefits. This is just one example of the constant back and forth of the legalities of the independent contractor — employee question.