Recent court cases have awarded judgments and settlements to contractors treated like employees by client companies, when they were not given employee benefits and protections. The latest tax laws account for the employee-contractor distinction in a more pronounced way than ever. The practice of deeming someone a contractor instead of an employee certainly reduces employer liability, on the surface, but it can increase legal exposure if the rules aren’t followed. Likewise, contractors who are freelancing need to be aware of their freedoms under the law, so they don’t become mere tools in the hands of clients, without at least the added benefits of traditional employment.
For contractors, our concern is for preserving the integrity and freedom of work in a sea of freelancers too often willing to act like commodities, indeed like serfs. Conceding to an employee-like existence, without at least employee-like protections (which aren’t that great to begin with), sentences you to an unsustainable future that will seriously impede your business growth. To grow and to compete, you must be free, and you must choose clients who will not presume upon that freedom. You have to be willing to take time for yourself, say no to people sometimes, not bend over backwards when clients miss deadlines, and not give up all that is good and precious about your life for your business. It might seem good for business, but it’s really bad for business in the long run. And the short run almost always *becomes* the long run when it comes to concessions. The client I respect the most insists that I take time for me when I need it. He says, “you’re no good to me worn out and burned out. I need you to take care of yourself, so I get the best value out of you when I really need you.”
For clients, letting that happen and wanting that control is foolish, too – it’s just not sustainable, and you won’t get the quality of work that will always be outdone (among your competitors) by free agents that are truly free, or the longevity out of brilliant talent when you do find it, because they can’t really sustain their business that way. Free agency is the way the brilliant people go. As a client, you should hope your talented contractors stay almost too busy for you, and aren’t sitting around waiting for that one phone call, where they are immediately available to do exactly what you want when you want. It’s counterintuitive, but you should desire to get just the time you need from the very best. After all, it’s part of why you’re taking on contractors, not employees. The need for control, and non-critical needs met immediately, can become economically pathological – you still see large and less competitive corporations insisting, to their own detriment, on bringing on employees in order to retain control where contractors would deliver better economy in the long run and higher value. Competitive companies in the future will prefer one hour of the best person they can find, at a premium rate, over full work days where they find stuff for lower paid, less valuable contributors to do.
So here are the five signs: While this article is not legal advice, and we have no special legal expertise, the following principles are at once our take on the meaning of the new legal requirements, insofar as they shape the work culture of free agents and limit the control of clients over people they contract with, where control is at odds with productivity and the best interest of the company. These are also good general principles to keep in mind, whether you are client or contractor, about the distinction between contracting and traditional employment. The items here are things we should already realize, of course – the new laws are just designed to keep relationships honest. As principles, they help keep it sustainable too, profitable for all, and best suited to the business growth of all participants.
1. You can tell an employee when, where, and how to work, or require them to act as a fully integrated part of your company processes. A contractor is a free agent that sets their own hours, duration of work, work places, and work methods. In other words, if you tell someone “I’m available 9-5, and I need you available 9-5”, then you pretty much have to pay them for that entire time frame (they’re “on call”). Otherwise, they can work from 4:30pm-1am if they want, or 2am-6am every 3rd day.
2. You can tell an employee to be available at specific times and engage in specific tasks at specific times. You can indicate specific times that specific tasks will be performed. With contractors, you mutually agree on mutually acceptable deadlines – time frames are agreed, not dictated – and work depends on availability and other work loads the contractor may choose to take on. In other words, it’s one thing to say “Can we get this done by Monday end of business” or “within 24hrs, if I get it to you before Thursday?” and another to say “Do this on Monday morning at 8am”.
3. You can dictate work methods and the manner of work to an employee, such as whether the work gets done all at once or in parts, or whether the person works on one project at a time. With contractors, you agree on mutually acceptable deliverables and outcomes, not method and manner. The contractor can work on many or few tasks, from one or several clients, simultaneously or separately, and take as much or as little work from whatever sources they see fit. It doesn’t mean you can’t say “look, I want pure HTML, not XML code” but you can’t really dictate whether they write it from scratch or use a tool to create it.
4. You can require an employee to attend various meetings and pay for that. A contractor cannot be required to attend at all, but can be invited. Contractors typically work by appointment, and may charge different rates based on what kind of time is being contracted: consulting might be charged differently than labor; on-call time might be charged at a much higher rate, if its agreed upon. You can ask a contractor to meet to clarify instructions, if they’re not delivering what you agreed on (they can turn down a request for one medium – e.g. phone – and indicate a preference for e-mail or another asynchronous medium, of course – live time is premium time, and might be billable, if you require that method), but you can’t demand unlimited consulting time to answer all your questions about a topic – consulting is always billable and subject to the schedule of both parties.
5. You can prevail upon an employee’s specific use of time and where and when they work. You can require an employee to be at their desk at a certain time, take vacations at certain times, etc. A contractor may take as much work as they wish from whatever sources they wish, and may refuse work or take only the work they wish. A contractor may work or not work at any given time of day or night, days of the week, weeks of the month, months of the year, etc, as they may wish. In other words, you may have a right to ask an employee “where were you yesterday?” But contractors might decide to go to the Yukon for two weeks in between contracts. When you call, they might be out on the tundra, not necessarily standing by for a call. Most contractors make arrangements for some kind of response within 24hrs, with a few exceptions, but you still can’t presume on their schedule. Contractors take vacations, have medical appointments, and sometimes just decide not to do anything related to business for a few days. If you’re going to need them at a certain time, on a critical basis, you have to book that time with them. And then, if you don’t deliver your part or can’t make it to the appointment, they get to bill for it anyway without reasonable cancellation notice from the client.
These are general principles of contracting which traditionally contract professionals know quite well. They’re not absolute laws, but they are the starting place in most cases, and price tends to go up to the degree they get pushed. Contract laborers, on the other hand, have often participated with clients in bending these rules, and both parties should now be aware that the US is onto this. Freelancers, though, are where the lines seem to be blurring the most rapidly, with clients attempting to utilize freelancers as integral parts of their office operations. There’s nothing inherently wrong with that, if the pay structure (including benefit structure) is equitable and honest. Regardless of the drawbacks or benefits of that approach, the distinctions between contractor, freelancer, and entrepreneur (and where they overlap!) are key emerging areas of negotiation, posture, and distinction that contract professionals are finding it necessary to emphasize.
If you went into contracting for the freedom, the ability to grow your talent, and to create an economic enterprise, you don’t have to worry about holding the line vs. becoming essentially and employee again, if you deliver at a high enough quotient of value. Contract professionals who try to live like employees will ultimately over-spend and under-deliver. The point of competition is not what other people are willing to yield or concede to; it is what you can deliver that earns you the status of contract professional, and retains your credence in that status. And even when there are clients willing to choose less expensive, more compliant talent, you’ll know that you are, instead, working for those clients’ competition. Clients, too, should take note of that, and consider the value in getting the best they can afford, and figure out what they *don’t* need. Usually, clients don’t need to govern when, where, and how contractors work.