Thoughts on Independence
I’ve been an independent graphic designer and photo editor for the last three-plus years. An odd theme I’ve observed along the way was my clients being audited by the US Department of Labor (DOL) regarding their usage of freelancers. I have been advised in various ways by my clients that to continue our client-vendor relationship I must clear certain minimum business organization standards. The first requirement was pretty simple: I must have my business organized as an LLC. Being a Sole Proprietor at the time, I filed the LLC paperwork and moved on. Since then I’ve transitioned from operating as an LLC organization to an S-Corp.
Why is the government busting my client’s chops about their freelancers?
Initially, I assumed that the DOL was lumping graphic designer contractors in with more unskilled and (stereotypically) exploited contractor positions. We’ve all heard stories of jobs that are structured as independent contract labor that really should be full-time work with benefits, minimum wages, worker’s comp coverage, etc. It seemed strange that the government was trying to protect me from my clients. Clients with whom I have negotiated rates and working relationships that I find very fair. I command a good rate for my work. I am insured. I save for retirement. I say ‘No thank you’ to this ‘help’. It’s easy for me to imagine the government being dumb enough create policies saving me from my hard-won independence by blindly misapplying labor policies designed to protect a truly exploited class of worker.
I began to realize over time, as more of my clients were audited, the audits were unlikely intended to protect me from my clients. These audits likely have more to do with tax revenue. Once a job formerly done by an employee is done by a small-business-person, that business person can use all the corporate tax loopholes a larger business has access to. Perhaps more than letting me use business tax loopholes, the government is likely displeased with businesses using contractors to stay below certain headcounts to avoid the red tape that comes with growth (FMLA seems to be the big law here)
The DOL has a blog post on the topic of Contractor versus Employee status. From where I sit, the DOL appears to be trying to minimize the number of contractors, regardless of how good a deal contractors may be able to negotiate for themselves, because it screws up tax revenues. Businesses are given preferential tax treatment. If a significant amount of a business’s work is farmed out to other businesses (contractors) there is less revenue flowing to government coffers. The consequence being: a motivated contractor finds it more difficult to enjoy the advantages (tax & otherwise) of being independent from their client.
Who may be protected be these audits?
I’ve worked with freelancers who clearly wish they were employees and behave as such. I worked on the west side of Minneapolis at an agency with a guy who drove in from Wisconsin everyday (about a 50 mile commute) and never even claimed the milage on his taxes as a deduction because he didn’t feel he should take business deductions.
Some freelancers are uninterested in finding other clients. They don’t attempt to fill their schedule with the most lucrative & interesting combination of clients & projects, preferring to stick with a single client through thick & thin.
These workers probably are missclassified workers.
Maybe these people like the DOL’s crack down on missclassified employees. Perhaps they’d love the government to force companies to hire them as W-2 employees.
But for every wannabe W-2 employee/freelancer I’ve worked with, there is another entrepreneurial small business-person who negotiates a fair rate, pays their taxes and runs their freelance practice as a real business, competing in the marketplace for work.
It bugs me that the DOL seems to have intimidated the creative industry into pushing successful, well-compensated small business-people into employees. I feel that small-scale (often single-person) businesses should be encouraged rather than shunted into employee status. Every freelancer is a potential design agency start-up. Provided they aren’t forced to abandon independence by clients afraid of DOL compliance audits.
If you read the fine print, the DOL says they feel every situation is different and there is no single litmus test that can guarantee compliance. Of course, that is unworkable IRL. Remember my client who said all I needed to do was organize as an LLC and I’d be okey-dokey? The application of this policy was quite arbitrary in my case. This opacity makes it unclear how to proceed. If I wasn’t the stubborn fuck that I am, I might have rolled over and accepted the W-2 alternative that was presented to me. These audits are going to intimidate creatives, a class of worker who is not stereotypically known for its regulatory savvy.
What are your thoughts about the rash of DOL audits of design agencies?
Are you a freelancer who wishes to be an employee?
Are you a freelancer being pressured to become an employee against your wishes?