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> Also not an accountant or lawyer, but I think that if you're paying someone by the hour, and directing them as to how they should do they job, they need to be

by nickjj 7y ago

> Also not an accountant or lawyer, but I think that if you're paying someone by the hour, and directing them as to how they should do they job, they need to be classified as an employee, not a contractor. > This means a W2 instead of a 1099 [...] I'm a freelance developer in NY and this isn't the case. When someone requests me to do work for them they tell me what they want done, we scope out the project and then I either bill them by the hour or by the project depending on what's going on. Sometimes I work 50 hours a week on that project, sometimes 5. But in all cases, they send me a 1099 at the end of the year. I might be considered some type of contractor in their software since most of the companies I work for auto-bill me through some software but in no case have I ever been declared as a W2 employee. Everything you wrote is true if they were a W2 employee, but that means being officially hired and defined as a full time employee. Also I've paid out a lot of people for contract work as a freelancer and my accountant said it's no problem. I just give the numbers and he provides me the 1099 to send out. It's been working like this without issues for years. This is partly why freelance or contract workers need to and can get away with charging more per hour. They get no perks of being an employee. Health care is super expensive and we essentially pay double the social security taxes since we're both our own employer and employee. There's also no free lunches or other employee status perks like matching retirement funds, etc.. But on the flip side, getting hired as a freelancer is a huge win for business owners because now they don't mind paying higher rates for a freelancer since they are off the hook to provide all of those W2 benefits and also avoid paying a consistent salary even if there's not much work to do (typical scenario where you're clocking 8 hours a day but only 2 of those hours are productive things). A freelancer might get 5 productive hours in for that day, charge for 5 hours and after a week they clocked 25 hours but a salary worker would have clocked 40 and was productive for less than half (not due to laziness but there's just not enough "real" work to do). After factoring in everything, if the freelancer is technically 4x or even 5x the salary worker's hourly rate the business still comes out ahead.

alistairSH 7y ago
The difference is that the company that contracted you isn't managing your day-to-day work. Company hires you and says "we need a website that does X" and leaves you to do it. You might be a contractor/free-lancer. Company hires you and says "we need a website that does X, you need to work in the office and/or use our hardware, and we want it written in React, and you'll be working closely with JimBob the Manager." You are probably not a contractor/freelancer. Yes, there's some grey area in there. It's a combination of the three factors in the ABC test that determines employee vs contractor.
- PorterDuff 7y ago
  "Yes, there's some grey area in there." From my experience, I've never seen a software contractor that could avoid being considered an employee if the eyes of the state government fell upon them closely.
  - ska 7y ago
    I've never seen a software contractor that could avoid being considered an employee... There are lots of them. Consider a company that doesn't produce software at all hiring you to build an app for them. or a company that has no expertise in your area, etc. If you are embedded in a team and could swap roles with any of them, you probably aren't a really a contractor though.
einarvollset 7y ago
It will probably come as a surprise to you (it did me several years ago), that it’s not simply up to you and the company hiring you if you are considered a freelancer. This is not a matter of billable vs guaranteed hours. It’s a classification based on employee control over the person in question. In fact, if you were micro directing the people you paid 1099, you may have had what the state of NY would consider an employee. Yes you’ll probably never get found out, but that doesn’t negate the fact.
- nickjj 7y ago
  > It will probably come as a surprise to you (it did me several years ago), that it’s not simply up to you and the company hiring you if you are considered a freelancer. Where do you draw the line? Let's say you hire someone for 3 hours to help you out for a specific task. A "I would like X done with Y" type of scenario. Are they now considered an employee? What if you asked someone to do a code review for 5 hours where you precisely told them what to do, but it's on them to determine the state of the code? Also an employee? Does your answer change if you asked them to do this 1 hour a week for a year? Here's another example. A company hired me to do X. This ended up being a ~100 hour project. They gave me a checklist of deliverables and a pretty decent break down on how to implement everything. They let me choose the tech (but had suggestions on what to use) and how the application functioned was defined by them. Am I an employee and if so, what if I worked 20 hours a week until it was done vs 50 hours a week -- does that change anything? Scenarios like the above are really common in the freelance world. You get a super wide range of work thrown at you (as you know). I've talked with a number of accountants over the years and always told them everything I've been up to. I was never once recommended to classify myself as a W2 employee, or be on the hook for hiring a W2 employee for short term contract work that I provided someone. It's always been 1099s in and 1099s out.
  - athenot 7y ago
    Not legal advice but... Usually in your situation you will have your own computer, your own workspace (except for meetings with the client), and deliver things based on a predefined scope (or predefined set of expectations). That's good enough to make you a freelancer. On the other hand, if the company told you to use their laptop, show up in their office, work using their methods—effectively manage how you work... that becomes W2 territory. Taking a step back, you're respecting the spirit of things. The company has a need, you have a solution, y'all have a transaction. On the other hand, if they were to integrate you as part of a team, within their processes, that's a W2. Of course in practice there's a third way that is common: large company A makes use of an intermediary contracting company B that they can pay as needed[0], and the contractors are W2 salaried of B, while A maintains all their flexibility. [0] Generally for all the crappy work that they don't want to do themselves. If you find yourself working for B, make it a learning experience and a personal goal to move beyond it.

by nickjj 7y ago

alistairSH 7y ago

The difference is that the company that contracted you isn't managing your day-to-day work. Company hires you and says "we need a website that does X" and leaves you to do it. You might be a contractor/free-lancer. Company hires you and says "we need a website that does X, you need to work in the office and/or use our hardware, and we want it written in React, and you'll be working closely with JimBob the Manager." You are probably not a contractor/freelancer. Yes, there's some grey area in there. It's a combination of the three factors in the ABC test that determines employee vs contractor.

PorterDuff 7y ago
"Yes, there's some grey area in there." From my experience, I've never seen a software contractor that could avoid being considered an employee if the eyes of the state government fell upon them closely.
- ska 7y ago
  I've never seen a software contractor that could avoid being considered an employee... There are lots of them. Consider a company that doesn't produce software at all hiring you to build an app for them. or a company that has no expertise in your area, etc. If you are embedded in a team and could swap roles with any of them, you probably aren't a really a contractor though.

einarvollset 7y ago

It will probably come as a surprise to you (it did me several years ago), that it’s not simply up to you and the company hiring you if you are considered a freelancer. This is not a matter of billable vs guaranteed hours. It’s a classification based on employee control over the person in question. In fact, if you were micro directing the people you paid 1099, you may have had what the state of NY would consider an employee. Yes you’ll probably never get found out, but that doesn’t negate the fact.

nickjj 7y ago
> It will probably come as a surprise to you (it did me several years ago), that it’s not simply up to you and the company hiring you if you are considered a freelancer. Where do you draw the line? Let's say you hire someone for 3 hours to help you out for a specific task. A "I would like X done with Y" type of scenario. Are they now considered an employee? What if you asked someone to do a code review for 5 hours where you precisely told them what to do, but it's on them to determine the state of the code? Also an employee? Does your answer change if you asked them to do this 1 hour a week for a year? Here's another example. A company hired me to do X. This ended up being a ~100 hour project. They gave me a checklist of deliverables and a pretty decent break down on how to implement everything. They let me choose the tech (but had suggestions on what to use) and how the application functioned was defined by them. Am I an employee and if so, what if I worked 20 hours a week until it was done vs 50 hours a week -- does that change anything? Scenarios like the above are really common in the freelance world. You get a super wide range of work thrown at you (as you know). I've talked with a number of accountants over the years and always told them everything I've been up to. I was never once recommended to classify myself as a W2 employee, or be on the hook for hiring a W2 employee for short term contract work that I provided someone. It's always been 1099s in and 1099s out.
- athenot 7y ago
  Not legal advice but... Usually in your situation you will have your own computer, your own workspace (except for meetings with the client), and deliver things based on a predefined scope (or predefined set of expectations). That's good enough to make you a freelancer. On the other hand, if the company told you to use their laptop, show up in their office, work using their methods—effectively manage how you work... that becomes W2 territory. Taking a step back, you're respecting the spirit of things. The company has a need, you have a solution, y'all have a transaction. On the other hand, if they were to integrate you as part of a team, within their processes, that's a W2. Of course in practice there's a third way that is common: large company A makes use of an intermediary contracting company B that they can pay as needed[0], and the contractors are W2 salaried of B, while A maintains all their flexibility. [0] Generally for all the crappy work that they don't want to do themselves. If you find yourself working for B, make it a learning experience and a personal goal to move beyond it.