Questioning the Freelance Dilemma

A recent article at Animation World Network has stirred up many passionate comments from freelance visual effects artists in the industry as well as a response from one of the Employer Of Record services that now provide a legal means for many of the top studios in the Motion Design industry to hire independent workers.

At issue seems to be a question of the classification of workers on company premises, who are usually under supervision and are not legally incorporated as a separate business entity. Many of us often work this way for various studios and have never had a problem before. Yet, many studios who have recently been audited are now seeking a layer of protection between them and the workers they routinely hire.

Employer-side payroll taxes, usually paid for by companies, are deducted by the Employer of Record services as part of their fee, often totaling more than freelancers expect to pay with self-employment taxes. Many artists now feel like they are paying for the privilege of working. “I can’t help but feel like I am getting dumped with the majority of the expenses for the company I am working for covering their ass with the IRS,” said one NY-based freelancer.

We don’t claim to have the answers to this problem. We’re not lawyers or accountants, and every tax season confuses us anew. On the one hand both independent artists and production companies benefit from a mobile workforce that provides low overhead. On the other hand, there are legal and financial requirements that each side should take into account.

What’s your take? If you’re freelance, have you been required by clients to join an Employer Of Record service? And what’s your impression of the benefits and trade-offs of such a move? If you’re a studio owner, how would you like to work with design professionals who choose for financial and personal reasons to remain independent workers? Is there a middle ground that we can all agree on to find a common-sense solution to these issues?

For more information, see these links:
AWN: IRS and the Freelance Dilemma
IRS: Employee or Independent Contractor
CA Independent Contractor FAQ
MBO Response
Freelancer’s Union Forum: 1099 No More! Time for W-2??

EDIT: Adding this link (02/15/10): Incorporation Not a Substantive Factor In Determining Worker Status
EDIT: Adding this link from jultani in the comments, thanks! (02/18/10): U.S. Cracks Down on ‘Contractors’ as a Tax Dodge

EDIT: Added (03/01/10) FXDAG: Organizing Employers of Record?

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40 Comments

monovich

I spoke recently with a friend who had to use one of these services, a big question mark and potential downside was that it put into question the writeoffs that the freelancer took. If the income was now W2, what percentage of his writeoffs were nullified? Sounds like a minefield to me, and a big headache.
I never work on-site so this hasn’t been an issue for me, but what I’ve heard has led me to believe that the freelancer stands to lose in the equation unless they are very smart about it.

kpculhane

In California, if you’re not incorporated and working on-site, you are an employee.

Check it out: http://www.edd.ca.gov/pdf_pub_ctr/de38.pdf

More info here: http://www.dir.ca.gov/dlse/FAQ_IndependentContractor.htm

The shops in LA that are paying their artists via 1099 instead of W-2 are intentionally miss-classifying employees as independent contractors in order to evade payroll taxes and workers comp. insurance premiums. The result being: the artist pays more taxes.

(eg. Social Security and Medicare taxes are normally split 50/50 between the employer and the artist. Paid via 1099? Then the artists pays all of if themselves.)

These Employer-of-Record services are providing the studios a means to continue the practice. Even better, the studios are now offloading their payroll costs onto the artist in the form of fees to the employer-of-record company.

Good times.

kmfix

Is there any guide or resources for freelancers wishing to incorporate?

mathagat

Bam! There it is and could not have said it simpler.

manghangson

Lol, is this the thread written by mbo/yurkor lurkers?

czarina

Ugh. I have one major client — I work as a day-to-day permalancer at a network under Viacom and I think our payroll is pretty fair. I get a W2 with taxes taken out, but I don’t pay employer taxes and I *don’t* pay for *their* payroll expenses.

These services are just there to cover these company’s butts. If they aren’t a big part of your client base, vote with your feet! If they’re forcing you to join one of these services and you’re not willing to go along with it, you might try contacting the Attorney General’s office in your state or call the IRS or your state’s department of finance. It sounds scary to call the IRS, but they’re actually really helpful and on top of things and they’ve answered tax questions for me in the past. My state’s department of finance does have limited hours, but it’s not like calling your bank or the cable company. You’ll get a real answer and it’s your tax money at work. If you’re getting dinged 5% of your income and paying extra taxes because your employer’s using one of these services, it’s worth it to call.

mh

good golly miss molly. what a headache.

are any other freelancers in california also getting screwed by anthem blue cross’s ridiculous rate hikes?

dlew

dude. my insurance went up 200 bucks in february (health/dental). I was shocked. I’m considering canceling it or switching to a high deductible plan.. ugh.

prospectave

I am a partner at one of the larger motion graphics studios and, unfortunately, this issue is not going away. I’ll give my two cents:

First, I think everyone was happy the way it used to be. There was less paperwork for the studios, and more flexibility for the freelancer in terms of deduction management. The only folks who weren’t happy were the IRS. The crux of the issue is that, under the old system, most freelancers never paid payroll or medicare taxes AT ALL. Sure, they paid income tax, but the payroll, unemployment and medicare taxes that would be incurred if he were an employee simply never happened. So Uncle Sam sees all these guys (e.g. sometimes half our studio or more is freelance) making lots of money and flying under the payroll tax radar. He realizes he’s missing out on a big chunk of dough, which is hard to come by these days.

So that’s where the government is cracking down. As the previous post points out, the California definition of “employee” encompasses pretty much everyone who is reading this (are you working on site, are you using the studio’s equipment, are you doing what the studio does). The studios didn’t write the definition and there is a legitimate window of legal exposure that widens with every year, as our deficit-laden government pushes harder to squeeze out every penny it can. If a studio gets audited and the tax-man determines that half of its artists were not treated as “employees”, but as “freelancers”, the studio will get dinged right then and there for all the payroll, workers comp. and medicare taxes due on said “employee”, plus penalties, interest, etc.

It sucks that this new attention to detail on the government’s part is going to cost anybody more money, but there is kind of a big, pink elephant in the room. The employment laws are meant to protect people from being abused by the system; for example, being denied overtime and/or workers’ compensation. This is perfectly understandable for labor-based occupations where the differential for the employer is such that he would spend less money by using “freelancers” instead of hiring “employees”, therefore dodging the tax bullet. But in our industry, the employer undoubtedly PAYS MORE to use “freelancers” than if the artist were staff. If we are honest with ourselves, we will acknowledge that most freelancers in our industry are voluntarily so, and undoubdtedly make more money per day than a staff position (certainly, anybody we book makes at least 1.5X the staff rate). I feel there has been an implicit understanding up until now that this higher “day rate” should accommodate for the overtime pay, workers comp, 401K, and other benefits a staff employee receives.

If studios were hiring freelancers to save money, then the “studio taking advantage of the little guy” argument would hold water. But the studios are not; rather, we are paying premium, out the nose prices, for freelancer’s services. In fact, I would gladly hire most freelancers on staff and rejoice in paying their payroll and workers comp. taxes. When you see a staff senior creative director making less money than a freelance pixel jockey two years out of school, the complaints ring a bit hollow. If the studios take on the payroll expenses, they will pay an additional 8-10% above an already high day rate and not have the primary benefit a staff employee brings: namely, commitment.

Bran Dougherty-Johnson

Pixel Jockey?!

I would argue, respectfully, that the day rate that any freelancer charges is not arbitrarily high. It’s the cost of being self-employed and paying the 15.3% Self-Employment tax (which includes FICA: Social Security and Medicare), as well as for one’s own accounting, tax preparation, health insurance and retirement planning. One’s rate also takes into account the downtime between jobs, unpaid overtime, sick days and holidays for which a freelancer is not paid, the costs of software and equipment, professional training and other legitimate business expenses.

The primary reason that studios hire freelancers is to provide a temporary and flexible workforce that they can shift in-and-out as their production needs expand or contract. You want rotoscopers for three days? You want a 3D modeler? A rigger? A type designer? All of those are specialized skills that are probably not needed every day of the year. You pay ‘premium’ for the convenience of having these talented individuals available to you when you need them, and not having to pay them when you don’t. Though if you can provide them stability, growth and a flexible and creative work environment I’m sure that many freelancers would love to take you up on your offer of employment.

The issue with the Employer of Record service is that now these temporary workers – who are technically being employed by the Employer Of Record services – are being charged that part of the Employer tax from their income. It seems like a more equitable solution could be found that doesn’t involve for-profit payroll services, unless you want all those freelancers to also raise their rates to compensate for the extra money they are no longer earning, as another commenter here suggested he already does.

dzer

I’m going to be a little less diplomatic. I say thanks for this post. I think this post says much that is true and good, however, Its not that freelance rates are to high, what I see happening is staff artist not being compensated appropriately for their contribution to the studio.

“When you see a staff senior creative director making less money than a freelance pixel jockey two years out of school”
– This is a problem created by the studio not the freelance rate.

Main two reasons I hear from freelancers turning down staff positions: money and office politics. The largest issue I see driving down rates for freelance and staff is the “more for less and yes” mentality and poor project management.

There are a number of solutions for freelancers who are not incorporated working in house at studios, an easy one is “raise your rate by 20% when asked to bill through Employer Of Record “

pj

why dont freelancers incorporate? it should be fairly helpful and protect them in the long run if i understand it correctly and help out the studios no?

kaiofthesun

ultimately incorporating can get very expensive for the freelancer. we’re looking at $800 a year, plus another $1000 for accounting fees, plus $100 a quarter to run payroll. AND…corporate tax return filing fees which start a $500. Plus whatever additional cost for our personal tax returns.

even the potential savings on SE taxes if you decide to file your taxes as an S-Corp don’t outweigh the fees stated above.

it seems to me that having freelancers incorporate is just a way to pass the overhead costs of the studio to the artist, unless someone can show me otherwise.

gugy

I only work out W9.
I pay my taxes April 15th. Have been doing this for the last 16 years without problem.
Sometimes some studios want me to fill 1099 or W2. I refuse and explain my situation. Usually they are fine with W9.
I work mostly at my office and also at studios in LA and NY. Not sure because I am an experienced artist they treat me differently that a recent graduate.

justAnotherFreelancer

Using payroll services in my opinion just creates headaches… I have enough trouble managing my personal invoices and now I have to go into a convoluted website and navigate through all the crap only to end up personally e-mailing my rep from the company asking where I can see my records. It does suck when you see your paystub and you end up paying twice as much tax as you’re used to and to add insult to injury, they charge you a fee to use their service (5% in my case). I’m definitely against payroll services

The nice studios tend to pay the 5% fee for you, which is definitely a gesture of good will, but I also up my day rate to compensate for the lost income. I suppose in the long run, it’s a win win situation. The studio isn’t afraid to get audited and I’m happy with a pay raise. All while the payroll company is smoking cigars and playing golf.

Seriously, I can mange my own invoices without a business degree from a college… and they have an automated website that does it for them. They’re just living the good life off my hard earned (and sometimes sparse) cash.

vpcboston

Thank you for posting an article about this very challenging shift in the way we all have to do business. We are a studio that works with freelance talent when we can’t handle the work in-house. We greatly respect the talent we work with, and when we got the word on high that crackdowns were starting on insurance (driven by policy and costs) it has been an uphill battle with almost every freelancer.

Anyone working in our facility has to be paid under payroll, with taxes/insurance taken out. Any independent contractor working for us OUTSIDE our facility (as per our insurance company) has to provide proof of Workers Compensation insurance. Our insurance needs an actual certificate, and no waivers are available. When we are audited, this paperwork needs to be on file. The insurance risk involved is that if a freelancer hurts themselves while at home (while working for us) and claims on WC we have to pay.

This puts us in a very bad position as most talent are not incorporated, or do not have their own WC policies. For about $250-300 a year a freelancer can purchase one for themselves. The other alternative is to be repped through a creative staffing agency which, I believe, cover WC insurance as part of their fees however they may charge a higher percentage than is necessary. Thirdly, we have found that YURCOR employer of record does have a range of benefits available to the freelancer (401k, all insurances, payroll, tax), and we’ve had several freelancers sign up with them as the % is more affordable.

From a business standpoint, studios do not want to pay the freelancers insurance benefits for them, it should be a business expense on the contractors part as cost of doing business. It is an entire level of paperwork and discussion that has to happen and slows everyone down. Anyone who refuses to get the WC insurance we are(technically) not supposed to work with. Who wins here?

cspecter

I have been working for about 12 years in broadcast design. I’m incorporated as an S-Corp in NYC. I’ve had a lot of employers over the years try to push me into a W-2, W-4 or EoN type situation and at this point I refuse to work with any client that will not pay me as a vendor via my S-Corp. My advice to all freelance designers out there is to incorporate and demand that you are paid via the corporation. There are many advantages to this situation over a “normal” freelance situation. You will pay less taxes (you can write off just about all expenses as you can pay the minimum into SS and skip the 15% self-employment tax) and you are eligible for a lot of small business discounted health insurance plans. You will need a good accountant to manage everything, but that should not be a road block to making more money.

I have been given a lot of excuses by employers on why they don’t want to pay me as a vendor, none that were satisfactory. In the end I’ve always been paid as a vendor. While I understand some of the insurance issues (especially via E&O), those issues must not be hard to overcome, as I’ve worked for just about every major broadcaster and cable company in the city with little or no issues getting paid as a vendor. I usually avoid working for small studios.

Incorporating should be one of the first pieces of advice given to all independent designers/animations/producers/whatever. In my opinion it is the only way, in our current employment and tax environment, to make it as a freelancer.

elwoodpdowd

While this is a fascinating debate, there really is no dilemma – while this industry has long operated under tacit agreement of 1099, it has done so AGAINST longstanding regulation, and against employment law. Period. Arguing over who’s taking advantage of whom is futile – the change is here, and it’s not going away.

In the truest sense, 1099 Independent Contractors conduct business and operate as their own employer and employee, and Schedule C Self-Employment taxes cover both employer/employee portions of Social Security and Medicare. With an EOR, little has changed other than withholding these taxes in the payroll cycle as opposed to quarterly estimated contributions. Bottom line, income taxes and FICA remain exactly the same as before.

At issue, then, are the Workers Compensation, Disability, and Unemployment taxes. As a 1099 freelancer, the IRS would strongly prefer you carry your own W/C policy – but let’s be honest, probably less than 5% of freelancers out there know this or have bothered to find out – and you’re simply not eligible for Unemployment or Disability claims outside of a classic W-2 situation.

And do the majority of freelancers want a permanent W-2 employee situation? No? So why complain when regulatory agencies hold your feet to the fire for your tax obligation as a business owner? You’ve essentially had a pass for quite a long time, but a few dollars an hour to insure yourself against loss of work or disability? Really? You’re going to cry wolf? As stated above, day rate is to cover ALL of your tax obligations. And yes – if you insist on freelancing, they’re YOUR obligation as a business – not any studio’s or agency’s that hires you. Demanding an instant increase in day rate is a bit disingenuous, since they’re insurance payments for your ultimate benefit. The studios don’t get weekly payouts when you make an unemployment claim – you do. Cost of doing business, plain and simple. TAX DEDUCTIBLE cost of doing business, really.

If you’re finding you’re not allowed the same expense deductions thru the EOR as you’ve been taking as a 1099, then you’re probably being more generous with your deductions than you should be. All routine, allowable expense deductions can be processed by your EOR to reduce your income tax burden. All annualized deductions will continue to be calculated on your annual return. If you’re following regulations, you shouldn’t have rude surprises.

And a brief history – the IRS and states are cracking down because of excessive unemployment claims in a down economy. 1099 Independent Contractors are ineligible for UI claims by the very nature of their business status. So, freelancers are filing, either naively or knowledgeably – either way it doesn’t matter – and the spotlight is on the industry and it’s not going away. Not to be harsh, but your fellow freelancers kind of brought it on themselves.

Still, finger pointing and blame doesn’t really resolve the issue. EOR is the only real solution so far to arise to meet the demands of flexibility and independence of the freelancer, and to reduce liability of the studios. This system DOES allow you business expense deductions, and you do have the freedom to adjust how much or little income taxes are withheld up front. Visit the IRS, talk to your CPA – most if not all tax accountants actually prefer this method once they understand how it works.

Lastly – studios aren’t setting this up out of some dastardly scheme to fleece the freelancers they hire. The studios are getting hit with audits and fines and penalties severe enough to close them down – the freelancers aren’t. Not yet, anyway… A 1099 audit is no less fun for an individual, and the IRS is watching closely. But as more studios close down, your opportunities as freelancers dwindle. As stated above, who wins here?

dshaw

Freelancers should just INCORPORATE.

This should’ve been the status quo before this all even came down. I was freelance for years, and being incorporated was a huge benefit come tax time.

Ask your CPA about it. No studio wants to ring up artists for 5% out of spite. They’re just protecting themselves. Do the same for yourself, this shouldn’t even be a debate. Getting a 1099 is irresponsible and you’re just screwing yourself in the long run.

dustedone

Amen DSHAW….that is the final word as far as i’m concerned.

“Freelancers should just INCORPORATE.

This should’ve been the status quo before this all even came down. I was freelance for years, and being incorporated was a huge benefit come tax time.

Ask your CPA about it. No studio wants to ring up artists for 5% out of spite. They’re just protecting themselves. Do the same for yourself, this shouldn’t even be a debate. Getting a 1099 is irresponsible and you’re just screwing yourself in the long run. “

jojohobo

F*&@ MBO, if a company refused to hire because you do not want to use MBO, you can sure that said company. All of this is a BAD BAD idea for companies..

TO HELL WITH MBO… Keep your money!

c4d4life

sure that company what?

pixelwizard

I whole heartily agree with the below comments.

“1) If you work on premises.. even for one day, you are a CONTRACT employee, not a freelancer and should be incorporated into the employer’s payroll. Not MBO’s (a 3rd party service).
2) If you work on premises you are entitled to state law breaks and OT pay after 8 hours.. none of this flat rate nonsense.”

UNLESS YOU ARE YOUR OWN S-CORPORATION AND AN EMPLOYEE OF YOUR OWN S-CORPORATION.

MBO is merely a payroll/staffing service trying to make a buck offloading employer corporate taxes in what should otherwise be the responsibility of the employer hiring the artist and extracting a profit fee from the artist rather than the employer by doing so. Doing so in this manner the employing firm avoids costly payroll and uit taxes as well as adhering to state overtime regulation. The service MBO provides is at a detriment to the artist who could otherwise setup an S-corp and associated payroll (in essence making themselves an employee of “their own” corporation) thereby taking advantage of all the the deductions and unemployment afforded to the artist. Instead, MBO get’s these deductions and the naive employee of MBO gets screwed in addition to perpetuating the underground employment tacts in this industry. Instead, in MBO’s scenario, the artist is classified as an employee of MBO and what’s even laughable is that the artist is paying a fee to be an employee of MBO without technically working for them. Does MBO adhere to overtime regulations in the artist’s said state? Does MBO pay their employees overtime? Let me guess…MBO lets the artists negotiate their rate thereby absolving themselves all-together from the employer employee relationship.

My advice to artists: Classify yourself as an employee under W2 when you work for a company or setup an S-Corp and you thereby become an employee of your S-Corp (W2) yet you maintain your 1099s when you are employed by said design/vfx shops. That’s it. Those are the only two options. If you want to stay 1099 without the S-Corp do so until you get audited or the company insists that they won’t pay you as 1099 because your not S-Corp because they fear they will get audited.

Let me reiterate however, if you don’t choose to be self employed and you have no intention of going into biz for yourself, anytime a company hires you to work on premises at their direction using their hardware they HAVE to pay you as an employee. As such they need to abide by all overtime regulation within their state. No day rate, hourly rate period.

Ruoyu1

all this info is very helpful, I am curious though, alot of you are saying you are entitled to OT pay after 8 hours, most studios i’ve been to are operating with 10 hours being the norm, yet do not offer OT pay for staff or freelancers. are they breaking the law by doing this?

dlew

Yes. They are breaking labor laws. along with like 500 other laws that are broken every day..

cash

and this is what blows my mind. how do these studios get away with doing this since they are in clear violation of many labor laws? why are they not held accountable? is it because nobody speaks up?

pablo33

Working in excess of 40 hours a week without overtime pay does not necessarily break any labor laws, especially in our field. Under the Fair Labor Standards Act (FLSA), many workers in our industry are exempt from overtime pay under the “Creative Professionals Exemption” and/or as “Highly Compensated Workers.”
http://www.dol.gov/whd/regs/compliance/fairpay/fs17d_professional.htm
http://www.dol.gov/whd/regs/compliance/fairpay/fs17h_highly_comp.htm

pixelwizard

I just would like to respond to the above comment, those compliance records indicate “employee” NOT a “non-employee”.

Studios tend to pay artists as “non-employee’s” hence the 1099.

Guess that means if the intention is to operate under those links an artist is hired as an “employee” and the artist makes more than $100,000 annually, meaning that the highly compensated “employee” “has” made $100,000 in one year in order to trigger it.

Otherwise, the law is being broken

mh

in CA, incorporating includes a mandatory annual $800 fee.

am i correct?

pixelwizard

Yes, and it only makes sense if your income exceeds $150,000 annually, otherwise the savings don’t justify it. Your better off as an “employee”

poolparty

I think the service sounds alright. i have a problem with the 5% that the company charges.

stimmler

I can not fathom why anyone in their right mind in this industry would want to be a w-2 employee. I, and every artist I have had the pleasure of working with, cherish the ability to take full advantage of business deductions. If you are going to be classified as an employee, you have limitations to what deductions will actually be realized b/c it will no longer flow through on your schedule C. (If schedule C is not a familiar term to you, do yourself a favor and ask more questions to your accountant)

Read any industry publication and you’ll see that budgets are down, way down. I’m not defending the studios here, but let’s be objective for a sec. Less money for jobs + higher cost of labor + HD + shorter timelines set by clients is not a balanced scenario. With things in flux like they are, I’m going to push as hard as I can to stay nimble and marketable to all my clients. Do I enjoy long hours? Hell no. But unless the project is mismanaged by the studio, I usually know what i am getting into before I book and I have a choice to work or not. Again, ask questions.

Getting incorporated may or may not make sense for you financially compared to the way things worked before the department of labor honed in on this industry-but those old days are long gone (which is directly related to the spike in unemployment claims by our peers). The honest truth is that may of the people that participate in this industry are, in fact, in business for themselves. You market yourself (reels), you maintain client relationships, you pay for your own professional development, you seek independent projects… etc. Do you control the means and method of your art work? In may ways: Yes… Though, some may argue different.

The laws are very vague and vary from state to state. I actually called the Workers Comp Board in my state and asked about the need for insurance. I tried to get a handle on what I should do to get legit in the eyes of the state to maintain my independent contractor status. I talked to two different people at the board and got two different answers. The reason why MBO and Yucor even exist is b/c of this gray area- which leaves the employer very exposed. I wouldn’t be surprised if MBO and Yucor’s biggest clients are actually government contractors… they are here to stay. But if you educate yourself and do a little bit of planning, you can come out of this whole labor conversation with a more refined personal business model and more personal protection for yourself. If your accountant is worth anything, ask him to do an A/B/C comparison given your current billings/expenses using an LLC, s-corp, and as w-2 employee. Let the numbers speak.

Bran Dougherty-Johnson

I added a link to another article to the post: http://www.michaelbest.com/pubs/pubDetailMB.aspx?xpST=PubDetail&pub=2426

“the fact a worker is incorporated has little or no effect at all in determining worker status.”

Check it out …

scottg

This makes me glad we have nothing like this in Australia – that I know of. I was freelancing for a while here before giving that up for the stability and low wages of full time employment, and generally, as long as you have a registered business number you can invoice any company as a contractor and they’re all fine with it. Some would need to register with the Tax Office for GST (goods and services tax), but only if you’re bringing in more than 70k a year (which any decent freelancer would want to be doing). You can also register for GST if you’re under the 70k threshold and just want to be safe. We have nothing like MBO or EORs here, thank goodness. Though perhaps it won’t be too long before we do?

In any case, it makes me wonder what I would do if I were to travel to the USA for work. How does this situation affect international freelancers? The US freelancing market suddenly become a whole lot more confusing to me…

sidewalksurfing

There really is no discussion here. The IRS handed out some hefty fines this year. They can go back 3 years in their audit and that can amount to some HUGE fines. Close the doors, shut the lights, kind of fines. The old “under the radar” way of getting paid is over with.

eric3020

To all the freelance digital artists who like myself are sick of MBO trying to make a buck off us – I’ve created a linkedin group to organize our opposition to MBO partners and similar groups:

http://www.linkedin.com/groups?about=&gid=2762465&trk=anet_ug_grppro

Please join and help me out on this!

Eric

jultani

NYtimes just published an article about misclassifying workers.

http://www.nytimes.com/2010/02/18/business/18workers.html?pagewanted=1&em

It seems the point of the article is that classifying workers as employees protects workers through paid overtime, sick days, vacations, etc. And of course, the government is hungry to collect on employer taxes.

I don’t have a problem with workers being given overtime, sick days, and vacations, or even companies paying their dues. This is generally a positive thing for worker rights.

However, I have a huge problem with MBO and Yurcor, because they enable companies to protect their bottom line at the expense of the freelancers. Rather than improving the working conditions for freelancers, they’ve managed to offload expenses that should be paid by the employers onto the freelancers through creative accounting.

These expenses and taxes outweigh the costs freelancers previously paid, which were already very high.

MBO and Yurcor are also confused about the classification of the freelancers that sign up with them (see MBO response). This indicates that they themselves are out of touch with the laws. MBO’s demonstrated ignorance and fancy footwork around issues can’t possibly shield companies in the long term from employer responsibilities.

Freelancers get paid a higher rate because they lack job security. Companies should not expect freelancers to pay for their operating costs just because companies never had to in the past.

Finally, just because companies hire third parties does not absolve them of their responsibility to pay the employer taxes. To quote the IRS “The employer is ultimately responsible for the deposit and payment of federal tax liabilities.” The key word being PAYMENT of federal tax.

http://www.irs.gov/businesses/small/article/0,,id=176943,00.html

jultani

In reply to Scottg’s question about international freelancers, I don’t have a real legal answer, but I do have an anecdotal situation about an foreign freelancer.

A company I know of recently started using an employer of record to deal with American freelancers. They wanted to hire a foreign freelancer, but instead of putting her on the third party’s payroll, they instead put her on the company’s payroll just like a regular W2 staff employee. I think there were legal complications using third parties for foreign freelancers because of the requirements of her visa.

Her rates didn’t change, she’s still free to leave when she wants, and she’s avoided the extra taxes and fees from the third party.

RaptorRed

Props to motionographer and its writers for creating a space and articles on such important and relevant topics for the mograph and vfx industry.

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