Are you an employee or an independent contractor?

May 26, 2016

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Especially with the changing healthcare laws, it is even more important for freelancers to know our employment status with particular clients, and what that status means to taxes, health care, and other benefits for which we might be eligible.

Sometimes as a freelancer it is not entirely clear what your role is in a company. Are you their employee, or an independent contractor? Which one do you want to be, in what situations?

Here are some simple questions you can ask to determine your actual role with a particular client.

How often do you work for them?

Full time, part time, occasionally (like quarterly) or only for specific projects?

The amount of time you work for a company, the type of projects you work on, and the frequency they utilize your services all help determine your employment status and whether you receive a 1099 or W-2.

Does the client set your schedule and where you have to work?

Do you have to go into their office or another location at a certain time each day? Or do you set your own schedule and work in a place of your choosing?

The more control a client has over your schedule, the more likely you should be classified as an employee, even a temporary one, rather than an independent contractor.

How much control does the client have over your approach to work?

Do you use your own methods, or do you have to follow fairly rigid guidelines? Did you receive extensive training?

Essentially if a client controls your workflow and dictates specific guidelines you have to follow, they should classify you as an employee. If you determine your own process, you are an independent contractor.

Do you hire your own help when you need it?

If you need a proofreader or help from another designer on a project, do you hire and pay them, or does the client?

If you hire your own help, then you can count yourself as an independent – but if the client dictates with whom you must work, then they’re tipping the scales towards employment.

Who pays for the equipment or tools you use to perform the work?

Do they provide a laptop or other tools for you to do the job they have hired you to do? Or do you provide your own equipment and supplies?

If you provide your own, you are more than likely an independent contractor. If the client provides them for you, you might be an employee.

How does the client pay you?

Does the client pay you by the hour, week or month? Or do they pay you by the project or a salary?

The more tightly the client regulates how you are paid for your work, the more likely you are actually an employee.

Do you rely on a single client for your pay, or do you perform the same services for more than one client?

If you only perform work for one client, you are investing in their business, not your own. However if you work independently for several clients, you are an independent contractor

Are you free to make decisions that impact your own profits and losses?

Are you permitted to make autonomous decisions that impact your bottom line, or are those decisions made by the client?

If the client makes, or can make decisions that directly impact your profits or losses without your input, they are acting as your employer, not as a contracting entity.

Are you hired for a short term period, seasonally, or indefinitely?

The longer and more open ended your contract, the more reasonable it is for you to be classified as an employee.

Does the work you do improve the client’s profits?

If the answer is yes, more than likely you are an employee.

The designation you fall under with each client matters because of a number of factors you as a freelancer should be aware of.

Taxes: As an employee, the client pays a portion of your taxes. As an independent contractor you need to charge more by the hour to cover for your self-employment taxes you will have to pay.

Wages: Related to taxes, if you are paid hourly you should make more as an independent contractor than as an employee. If you are paid on a contract basis, you should calculate the taxes you will pay on earnings from any contract, and figure those costs into your bid.

Benefits: Depending on the client, you may be eligible for benefits, specifically health insurance. Under the Affordable Care Act, the health insurance mandate sometimes makes things challenging for freelancers. If you are classified as an employee by one of your clients, they may be required to offer you health insurance benefits, depending on the size of the company.

Employers offer other many benefits besides salaries, from 401 K plans to gym memberships. While most often the impetus for being a freelancer is freedom, with remote workspaces and other options, there are jobs that offer similar independence with the advantages of being employed by a company.

You can use this simple tool designed for companies to determine what your classification should be. Being employed by one company does not have to negate your freelance status. In fact it can enhance your resume and provide you with invaluable experience while at the same time fulfilling some of your needs.

When evaluating long term client projects that take place on site, determine if you are in fact an employee, and eligible for all of the perks that might include.

This is a post from a member of the Freelancers Union community. If you’re interested in sharing your expertise, your story, or some advice you think will help a fellow freelancer out, feel free to send your blog post to us here.

Troy Lambert

By day he writes non-fiction. By night, he writes suspense novels. He lives, works, and plays in Boise, Idaho with his wife, son, and two dogs. He hikes, cycles, fishes, skies and golfs (horribly).