One of the most important aspects of running a business involves hiring and managing workers, be they traditional employees or independent contractors, who, individually, are sometimes referred to as “freelancers.”
Many emerging enterprises prefer to engage independent contractors and freelancers – rather than employees – because of the perceived administrative hurdles and added costs to hire and maintain employees. Many workers themselves likewise prefer to be treated as independent contractors for similar and other reasons.
In the past, government agencies, including the IRS, have engaged in crackdown efforts for worker “misclassification” (i.e., characterizing workers who should be employees as independent contractors). One of the primary aims of these efforts has been to “close the tax gap” between what the government would have collected had more workers been characterized as employees – with all the required employment tax withholdings and payments – and what the government actually collects with workers classified as independent contractors.
Now, one major locality is aiming to directly protect workers characterized as independent contractors due to concerns raised by many that freelancers are not getting paid for their work. Indeed, as a 2015 report from the Freelancers Union found, over 70% of freelancers in New York claim to have experienced difficulties getting paid. In May 2017, New York City enacted an important new law called the Freelance Isn’t Free Act. Click To Tweet (FIFA) which contains both comprehensive protections for New York City freelance workers as well as penalties for FIFA non-compliance by persons or entities that retain freelancers (whom the law defines as, “Hiring Parties”).
Though the law is new – with rules governing its enforcement still being adopted and with the law’s interpretations still evolving – below are some key considerations to keep in mind, whether you’re a freelancer or a Hiring Party.
Who does this law apply to?New York City Freelance Workers and their Hiring Parties.
Freelance workers are defined under FIFA as individuals (or single-person businesses) hired or retained as independent contractors by a Hiring Party to provide services for compensation. This could mean everyone from a babysitter or house cleaner to a company’s software programmer or web developer. The only workers who are not covered by FIFA are the following: those hired as employees; those who agree to perform services for no compensation; certain sales representatives; certain professionals (such as attorneys and licensed medical professionals); and, workers hired by a federal, local, or state government.
In terms of FIFA’s geographic reach, the exact parameters have not yet been settled under this new law. To be sure, since FIFA is a New York City law, its provisions certainly come into play if a freelancer’s work is undertaken squarely within the five boroughs of New York City. But, depending on the circumstances, FIFA may also apply to work performed outside New York City. For example, FIFA may come into play in situations where only some, but not all, of the work is performed in New York City, or, if the Hiring Party has significant operations in New York City (but the freelancer is based elsewhere). As of this writing, New York City has only stated that it will be “up to the courts” to determine if and how FIFA applies in each particular case.
What does this mean for Freelancers? Strong Protections.
FIFA imposes specific requirements on Hiring Parties engaging a freelancer. For example, all engagements for services worth $800 or more (for one project or multiple projects over a 120-day period) must be spelled out in a written contract which defines: a) the work the freelancer will perform; b) the amount of compensation; and c) the date(s) the freelancer will receive payment.
A freelancer is entitled to complete and timely payment for his/her services on or before the date specified in the written contract (or within 30 days of completion of services if no date is specified). For example, FIFA now prohibits a Hiring Party from attempting to pay a freelancer either some fraction of the agreed-upon compensation on the due date, or, paying later than the date specified in the contract.
Freelancers also have the right to sue a Hiring Party for violating FIFA, and, freelancers are protected from retaliation, meaning, a Hiring Party cannot penalize, threaten, or blacklist a freelancer for exercising or attempting to exercise his/her rights under FIFA. So the bottom line is that New York City freelancers now have strong legal rights and equally robust mechanisms to enforce those rights.
What does this mean for Hiring Parties? Be aware of the new law and proceed accordingly in your contract drafting.
Penalties for violating FIFA can be significant. If a Hiring Party is sued and a court finds the Hiring Party violated FIFA, the Hiring Party can be liable for damages, specifically: a) double damages for late payment or non-payment; b) additional damages for failure to provide a written contract or if the Hiring Party retaliated; c) attorneys’ fees and costs; and d) punitive penalties up to $25,000 for repeat violations.
So, if you’re a Hiring Party that retains or plans to retain a freelancer, it’s important to understand this law and to determine whether any of your independent contractors fall within FIFA’s definition of a protected “freelance worker.”
It is also critical to remember the following: as discussed above, a worker’s classification is determined not by the worker’s title or the parties’ agreement, but by numerous other factors (often differing depending on the law, jurisdiction or agency), including the type of relationship and level of control the Hiring Party exercises. Simply calling a worker an “employee” isn’t enough to circumvent FIFA compliance. Moreover, doing so – while failing to comply with all applicable employment law, workers compensation, and withholding requirements – may subject the Hiring Party to similar (or greater) risk exposure.
If your workers are in fact freelance workers and you are a company located in New York City or you are engaging a freelancer there, make sure that: (1) any and all agreements with them are in writing; (2) those agreements contain all the necessary information required under FIFA; and (3) you pay them on time and the full amount specified in the contract.
Though this law and its interpretations are still evolving, it’s a significant step by New York City to protect its workers which must be understood by all involved in freelance relationships. If you feel this law currently applies to you or may apply in the future, consider consulting with an attorney to determine what steps must be taken to either ensure FIFA compliance if you are a Hiring Party, or, to give you more leverage if you are a freelancer.