Have you ever had a client that pushed your personal boundaries big time? Don’t be ashamed- my hand’s raised on this one, too.
In fact, I once freely gave away my personal cell phone number so clients could contact me. (Don’t worry, that all changed when I had to file a restraining order against one of my first-ever clients who abused this access to leave me threatening voicemails- that was fun!)
In any case, sometimes a client is just annoying or it takes some time to get into a good place in which they respect your boundaries.
But today I want to call your attention to a far more insidious problem- independent contractors vs. employees.
This matters most if you are offering your services in any way like a consultant or freelancer. That could be:
- Writing someone’s web copy
- Doing virtual assistant work
- Creating a web banner for someone
- Serving in a customer service assistant role
- Giving strategic advice as a business consultant
- Directing freelancers as a project manager
Now, I have to kick this off with a disclaimer: I’m not a lawyer. Nor do I pretend to be. So you should always check with your own employment or small biz lawyer, depending on whether or not you’re the client hiring other people to help you or in the position of the contractor.
In the U.S., it’s illegal for someone to hire you as an independent contractor (i.e. you signed a W9 and are being given a 1099 each year) and then treat you like an employee. You might be thinking that there are clear lines because you call someone a freelancer or contractor. But what about if you set up an email address like email@example.com? That could make it look like an employee-employer relationship more than you think it does. These small mistakes could cost you big time in terms of fines. The “employee” may be able to come after you for overtime and other costs, too!
The same goes for freelancers- if someone in the U.S. hires you as a “contractor” but starts stipulating that you’re online a certain time each day and that you do the work to their specifications, then it looks more like an employer-employee relationship. Legally, this exposes that business to major risks. Like I said, I’m not a lawyer, but I’ve known several freelancers who filed cases against their clients and a few clients who, in the past, had issues with this critical legal distinction.
The best thing you can do is to consult a lawyer and a human resources professional. As your business expands and you need more help, it might make sense to go from hiring contractors to employees. This should be done with the help of a pro. Furthermore, if you believe that a client has been treating you like an employee when you’re not supposed to be one, you might want to gently suggest this. Most big companies will have an HR rep who keeps an eye on things like this, but in the age of the superfast startup launch, these critical details could be missed. As a freelancer, you could be entitled to compensation if the employer crossed the line. As the employer, you could be facing big fines and be responsible for freelancer compensation. Being treated like an employee when you’re not one is more than just annoying- it’s illegal.
The key issues to determine whether or not it’s a contractor or employee relationship are:
- The behavioral control the “employer” has over the person doing the work
- The financial control the “employer” has over the person doing the work
- The relationship of the parties (like, were you being paid pension benefits or similar benefits?)
Check out this link from the IRS to learn more about the importance of the distinctions between the employer-employee relationship. Whether you own your own company and are expanding by hiring remote team workers or you’re regularly working with companies classifying you as a contractor, must know the law. (Because ignorance of it is not an excuse for breaking it, and you’ll still have the pay the fines for innocent mistakes.)