Freelancer, Don’t Lose Your Independence

How are you able to live out your values by freelancing? Give that some thought for a moment.
 
If you came into freelancing from a “day job”, would you ever go back? 
 

For me, one of the best things about freelancing was the ability to be present at all my kid’s sports activities, and even coach her softball team. I was able to spend a lot of time with her because I owned my time. Not being obligated to a nine-to-five work schedule imposed by an employer I was able to set aside weekday afternoons for her sports activities and interests. In fact, I did a lot of concept development (sketching) for client projects while sitting on the sidelines watching the kids play. I even acquired a few high value clients from among the other parents.

We self-employed, independent contracting, freelancer-types love our freedom. We can be choosey about clients and projects, when, how, and where we do our work, and live a fully self-determined lifestyle custom-designed by us and for us. 

Are you aware that entrepreneurship — your ability to work as an independent contractor / freelancer — is under attack in the US?

Now, before you think I’m going to get political here, let me simply state this: 

As owners of our creative businesses, we should know what policies are being proposed and debated that will affect our ability to make a profit and to work and live as we desire. 

As business owners, we are responsible to know what’s going on.

 
 

Why are so many freelancers, including creatives, concerned?

 
Entrepreneurship — especially concerning independent contractors and freelancers — is in jeopardy in the US. I’ve been talking about this  since 2020 when the ABC test, part of AB5, took effect in my home state of California. From there the ABC test has wended its way into other states, and to Congress (as part of the PRO Act.)
 
However, the NLRB has been intending to make the ABC test part of its policy. This will affect freelancing throughout the US in the same way it’s impacted freelancing in California where thousands of people and hundreds of businesses have exited the state. A Forbes article cites a statistic that during the past 2 years 2.6 million individuals have moved out of California. This exodus isn’t due to labor policies alone, but they are a factor in where a person decides to live and work.
 
In repsonse, a grassroots movement comprised of freelancers in all sectors is advocating for use of the IRS test instead of the ABC test. The IRS criteria are far more flexible in determining if you should be a W2 employee or a W9 freelancer. These criteria focus on who controls the work, the price, and the working relationship.
 
 

Independent contractors are not employees.

 
So the ABC test and others are intended to prevent misclassification of workers by employers. It’s true, and especially so in certain industries, that some businesses intentionally misclassify a worker as an independent contractor when they should be an employee. But this is not the case in a broad sense.
 
Employees have the right to certain benefits being provided by their employers that a freelancer, being self-employed, does not. Self-employed are self-employed by choice, not by force. That independence is more satisfying and profitable than employment.
 
We’ll take the position that a business should not misclassify someone as an IC who should be their employee.
 
However, California’s AB5 and the proposed Department of Labor ruling present some problems for many freelance creatives. Let’s first take a look at why this is the case, and then we’ll consider some ways we can avoid misclassification conundrums.
 
 

What are the proposed criteria  for determining worker classification?

 
Under the scrutiny of the ABC Test, a worker is considered an independent contractor only if they satisfy all three criteria:
 

A] The worker is free from the control and direction of the hiring entity in connection with the worker’s performance, both in writing (the contract for the performance of the work) and in fact.

B] The worker performs work that is beyond the usual course of the hiring entity’s business activities.

C]  The worker is regularly engaged in an independently established trade, occupation, or business of the same nature as the work performed.

 
Under the proposed DOJ rule, a worker is considered an independent contractor if they satisfy all six criteria:
 

1] The worker is free from the control and direction of the hiring entity in connection with the worker’s performance, both in writing (the contract for the performance of the work) and in fact.

2] The worker performs work that is beyond the usual course of the hiring entity’s business activities.

3]  The worker is regularly engaged in an independently established trade, occupation, or business of the same nature as the work performed.

4] The worker’s opportunity for profit or loss and their degree based on their ability to run their business.

5] The worker’s own investment in equipment, materials, or hired help.

6] Whether special skill is required to do the work.

It’s point B and Number 2 that are the stinkers for a large percentage of freelance creatives. It’s been customary for businesses in certain sectors to sub out work to independent contractors. Agencies, publishers, and news outlets are among those industries that historically have relied on freelance creatives to fill a variety of necessary roles.
 
For example, if you’re a creative doing retouching for a photographer, you’re doing work that may be considered a usual business activity of your client. So you would be misclassified as an independent contractor in that case (most likely).  However, if you’re retouching e-commerce images for a retail business client, you’re providing a service that’s not part of their normal business activities. So you’re correctly classified as an independent contractor.
 
Or take the example of an ad agency with an in-house art department that’s outsourcing overflow work to freelancers in order to meet a deadline. In that case the agency may be in jeopardy of misclassifying freelancers.
 
One photographer I’m mentoring pointed out that freelance creatives are often booked for specific projects because of their style and creative vision. Such projects are usually of a limited duration — a few days to a few weeks — and deadlines would be delayed or encumbered with HR interviews and hiring requirements. 
 
 

No industry exemptions

In 2020 and 2021 the California legislature had to amend AB5 and propose subsequent legislation — AB2257 — that exempts certain types of independent contractors, including certain creatives, entertainers, and marketers, from the B requirement.  So designers, photographers, writers, and other creatives are exempt in California.
 
However, there’s no indication that the Department of Labor (DOL) will allow any exemptions.
 
Even with the exemptions, a significant number of businesses in California and in other states stopped working with California-based freelancers. This resulted in loss of revenue, businesses closing down permanently, and self-employed creatives exiting the state. 
 
 

Why doesn’t forming a legitimate business make me an independent contractor?

 
Good question. The purpose of Freelance Road Trip is to educate and equip freelance creatives to profit from their creative work through proven business thinking. So we’re all about creative business and will maintain that position. One aspect of good business is establishing your business legitimately as a sole proprietor, LLC, or corporation. 
 
If you form an LLC or sole proprietorship, or if you incorporate, you can still be classified as an employee. Your business classification covers how you pay your income taxes, not your worker status
 
 

What can you do?

Know what’s going on. The DOJ proposes to incorporate the six classification criteria into the Fair Labor Standards Act (FLSA). You can download the proposed policy here to study and learn what’s in it.
 
More importantly, the proposed policy is open for public review and comment, and it’s worth your time to add your comments as to why you should be classified as an independent contractor. The comment period closes on Nov. 28, 2022. So do it now. You can use this doc from Fight For Freelancers as a template for your comments.
 
More things you can do ensure your independence from your clients:
 
1] Include a clause in your contracts stating that you’re an independent contractor and not an employee.
 
 2] Stop providing sub-contracted services to businesses whose activities are similar to yours.
 
3] Do not allow your clients to set your creative fees and how you bill for expenses. Establish and enforce your own policies.
 
4] Avoid using an hourly pricing structure. Use value-based (best practice) or project pricing instead.
 
5] Establish and enforce your own business policies governing how, when, and where you work so that the client does not control your time, creative process, or production activities. Because really, if you’re letting the client set the terms and they want to monitor and control your process, you should be their employee. 
 
6] Work with multiple clients. That means you regularly engage in marketing and networking activities to help build your clientele. Having only one client who’s the sole source of your freelance income is bad business practice.
 
6] Elect pro-business lawmakers who understand and support self-employment, entrepreneurship, and your right to work as a freelance creative.
 
 

ACCELERATE your freelance business.

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