What is a Business Owner's Relationship with Freelancers?

By Penny Morey • Dec 16, 2011

Opinions expressed by Entrepreneur contributors are their own.

Is the enterprise head the employer of the freelancer? Or is he or she the client of the freelancer? Are there any legal issues to consider? What tips can you share for managing this type of business relationship?

Normally, a freelancer is brought on board as a contractor under a professional services agreement. Essentially, you will be paying this individual to do specific work at a set rate per hour or per day because he or she has expertise that you need on a temporary basis. You are not his or her “employer."

It is advisable to have contracts in place with freelancers and to abide by the Internal Revenue Service (IRS) rules regarding these individuals. Otherwise, you might discover that they expect other non-standard considerations when their contracts end.

For example, it is not uncommon for an independent worker such as a freelancer whose engagement period has ended to apply for unemployment insurance benefits with a state agency. Then, when officials do not find any earnings reported for the worker, an investigation ensues. For misclassifications, the payouts most often involve benefits and lost wages including unpaid overtime.

Contractors should all have specific self-determining kinds of work to do, normally in a finite time period, with defined deliverables, using their own place of work and so forth. If you look at Section Two of the IRS Publication 15-A, you will see what the IRS considers when determining whether a worker is an employee or an independent contractor (i.e., 1099 worker).

The IRS will help an organization free of charge to determine the appropriate classification for a worker or group of workers in the organization as regards federal law. To obtain that service, you complete and submit IRS Form SS-8 to the IRS. However, your state may have more or different requirements.

Penny Morey

Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.

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