Want to make sure you're correctly classifying your freelancers as such? Download our free guide.
The Risk of Bringing on Freelancers
Small businesses stand to gain a lot by engaging freelancers, but they also expose themselves to massive liability if they misclassify employees.
Although treating an employee as a freelancer seems like a minor oversight, the stakes are incredibly high for small businesses that make that mistake. To avoid facing costly litigation and tax consequences down the road, make sure you engage freelancers properly from the start.
Here are some tips to help your company stay compliant while working with independent contractors:
How To Stay Compliant with Freelancers
Work With a Variety of Freelancers
The more extensive your relationship with any single freelancer, the more likely it is that you have an employer-employee relationship.
Don’t Require Exclusivity
You want your freelancers working for a variety of clients, not just you. This minimizes the chance that they’ll be economically dependent on you.
Take a Hands-Off Approach
If you want to dictate the hours freelancers work and where, you’ll end up with an employment relationship. Remember also to avoid paying freelancers by the hour. Pay on a per-project basis is more consistent with freelance status.
Use Employees for Integral Jobs
Don't turn to freelancers for jobs that might reveal company information you wouldn't want an outsider to know. For example, don't turn to a freelancer to manage your company's budget.
How to Manage Freelancers (the Legal Way)
Hire, classify, and manage your freelancers legally.
Contractually Limit the Relationship
Indefinite, permanent relationships resemble employment more than they do freelance arrangements. In your business-freelancer initial agreement, make sure you include a start and end date for the associated project.
Written contracts can help establish a freelance arrangement, but they won’t protect you completely. Using the strategies we’ve provided in our free guide can also help you stay on the right side of employment law when you manage freelancers.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.
