mis-classified as an employee - legal recourse?

M

mcbob

Veteran
File under "thanks a lot, CA" I reckon.... and I'm extra ranty at the moment, so proceed with caution

More and more clients for 1-2-day gigs, who would have normally rightfully paid me as a 1099 contractor and allowed me as a business to freely deduct my mileage, meals, and other associated costs are now insisting I file a W4 and be paid as an employee... for one day... with a time sheet... and of course I have to bicker about the various mileage and other costs and increase the bookkeeping headaches on my end, give the .gov an interest-free loan for a time, and so on...

Any pushback usually gets discounted with "standard practice" or "our lawyers said" or blah blah blah. BS. I'm clearly not an employee, don't want to be an employee, get zero benefit from being an employee, and they only have added hassle of classifying me as such. Nobody wins aside from faceless minions of .gov, .biz, and unions.

Online searches are no help since the powers-that-be in charge of micromanaging our lives want to remove as much personal freedom as possible and place all under the yoke of corporation... all associated searches turn up "misclassified as independent contractor" solutions on how to sue your clients to place their chains securely upon you.

The production world is famously full of sheeple eager to follow whatever diktat our progressive betters fling at them, but surely there are some free-minded freelancers out there who have dealt with this sticky wicket and found distinct methods of sidestepping this new devilry. Would love to hear solutions.

and FWIW, save your typing on explaining why this is now a thing and is somehow better for us. I steadfastly do not believe it is, or I would have taken a job as an employee flogging some School of Business instead of hustling my ass off in exchange for a degree of freedom in what and when I shoot.
 
I've run into this a few times and I agree with you that it is bullshit. Freelancers are not employees and should not be treated as employees. But in the long run, I don't really care that much about it. Once you get past the hassle of completing some extra paperwork, it is mostly a non-issue. As long the compensation is ultimately the same dollar amount as if they'd paid from an invoice, I really don't care how they want to classify their payment in their own acounting system. On my end, I will report the income with the attached W2 they send at the end of the year, and then I will also deduct any legitimate expenses associated with the job on my Schedule C -- just as I would do if they had paid from an invoice I submitted. It all balances out in the end.
 
As I understand it, employers face more risk/fines/hassle if they misclassify employees as independent contractors, than if they misclassify independent contractors as employees. So there's a "what's in it for me?" hurdle we need to cross. For this sort of thing I usually turn to the books and free articles from Nolo. Good stuff written by lawyers but in a way that normal people can understand it. And they're good, as far as I can tell, at distinguishing between what we can DIY and what really requires a lawyer or an accountant. And even when I've had to turn to a lawyer, the information I've gleaned from Nolo helps move things along and keep my legal fees under control. Also, I've been able to point HR people and clients to Nolo articles to get things worked out w/o tons of hassle... Sometimes.

So here are three articles from them that might help you. There is some overlap, but the articles aren't long and you can skim to the parts you care about:

Preserving Your Status as an Independent Contractor
https://www.nolo.com/legal-encyclope...tor-30177.html

Exempt Job Categories Under California's AB5 Law
https://www.nolo.com/legal-encyclope...w-ab5-law.html

Minimum Requirements for Working as an Independent Contractor
https://www.nolo.com/legal-encyclope...tor-29978.html

That info and more is compiled in this book. I have an older edition, and it's well worn:

Working for Yourself
https://store.nolo.com/products/work...self-wage.html


[Edit: Usually, I'm correctly classified. IME, big companies require some (or a lot) of paperwork so they can prove my status as a vendor/IC. Really small companies tend to get it, too, since they outsource so much stuff. But it's the midsize companies that sometimes get tricky]. Once...and only once... I was able to convince and show a [midsize] client that I did all the stuff to qualify as an independent contractor. And they relented. Perhaps I convinced them, perhaps I just wore them down. But also in my circle, people are starting to get a handle on who is and isn't an independent contractor. Good luck.
 
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Jim Feeley said:
Preserving Your Status as an Independent Contractor
https://www.nolo.com/legal-encyclope...tor-30177.html

Exempt Job Categories Under California's AB5 Law
https://www.nolo.com/legal-encyclope...w-ab5-law.html

Minimum Requirements for Working as an Independent Contractor
https://www.nolo.com/legal-encyclope...tor-29978.html

That info and more is compiled in this book. I have an older edition, and it's well worn:

Working for Yourself
https://store.nolo.com/products/work...self-wage.html
Click to expand...

You have won my appreciation and adoration for All Time. Thank you
 
I feel the opposite I'd prefer to be paid as an employee with a W-2, you get taxed at a higher rate as 1099 independent contractor. I have a few clients like schools who occasionally pay me as a W2. I don't really care as long as I get paid.
 
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7.5% saved by being on W2, so it depends. IE if it's your main income source it will prohibit tax write-offs for gear, right? Not to mention per diem, mileage, etc.

But I have a couple clients outside of my main stuff where I'm classified as W2. It's just remote editing and the total maybe amounts to 15% of my income. They email me and I say yay or nay to a project. So in a case like that, saving the 7.5% on taxes is advantageous.

I wouldn't want to be classified as a W2 for my travel production shoots - then I would lose out on a lot of write-offs (not just for the travel and production, but the equipment I buy, software subscriptions, etc.) as these make up the majority of my work.

In short, as I understand it (someone correct me if I am wrong) - you need to have enough income pushing through your 1099 LLC to get the write-offs you need/want and still be turning a profit, and for some other small things, as long as the relationship is good with the client, being on a W2 payroll can have some perks.
 
I too have run into this occasionally....and agree it is a load of crap. One of the most recent times, I didn't find out the employee designation,... until after the 2 day shoot and I was ready to invoice. From what I understand, lots of "shows" (broadcast & streaming) are going to this. The one I worked with seems to have all their time card, HR crap farmed out to an entity that must handle many of these. And they also want to ship camera gear to their "employees" (sheeple probably better description).

I generally just try to steer clear of these type of clients... not even so much because of the employee thing... but just because when someone - usually who has minimum experience - starts to tell me how to do my job, I get a bit exasperated. I also prefer to "Retain Control of My Work". (Thanks for those links Jim - good stuff)
 
"Entertainment Partners" is one of the big showbiz payroll entities that I've been paid through.

That "7.5% saved" tax figure is of course extremely conditional... maybe if my "business" is only a simple pass-through sole proprietorship with no employees... but once we venture into Type S corp entities and the like, that math goes out the window. I pay myself the same each month (or at least strive to in leaner times)... it's the business' income that varies. Technically, there's a wide array of expenses that we're not allowed to deduct when working as an employee... but don't worry, I'm sure those 87,000 new armed IRS agents are just after the "rich" and not small middle-class non-traditional business owners like us and certainly won't nit-pick us in the coming wave of audits.

But even if it's all 'even money' to me... and I've already worked more than a few of these at low enough levels where I discounted the bother... I think freelancers have to start pushing back before the very acceptance of or option to freelance is lost.
 
Peter C. said:
I feel the opposite I'd prefer to be paid as an employee with a W-2, you get taxed at a higher rate as 1099 independent contractor. I have a few clients like schools who occasionally pay me as a W2. I don't really care as long as I get paid.
Click to expand...

As many have mentioned, if you lose the option to make deductions (though I'm not sure that would happen anyway), the 7.5% savings may be less that you'd save as an independent contractor.

But also, at least for the time being - isn’t there a tax cut on pass-through income from the Trump tax cuts? Maybe expiring in a year or two? It's a big deduction and I don't think you'd get it as an employee. For right now, I think, the tax math is clearly in favor of freelancing...
 
mcbob said:
, I'm sure those 87,000 new armed IRS agents are just after the "rich" and not small middle-class non-traditional business owners like us and certainly won't nit-pick us in the coming wave of audits.

But even if it's all 'even money' to me... and I've already worked more than a few of these at low enough levels where I discounted the bother... I think freelancers have to start pushing back before the very acceptance of or option to freelance is lost.
Click to expand...

Lol armed IRS agents

As I understand it, there's an explicit directive not to increase audit frequency on businesses making less than $400k/yr. If that's not you, congrats

The Democrats' anti-freelancer bill is never going to pass. I think that the number of freelancers (at least, technical freelancers) is massive and growing. 70 million right now. Projected to reach 90 million in 6 years. We're not an endangered species.

Some of that is smoke and mirrors. All the staffers at my biggest client are actually permalance. Basically the whole company is either vice-presidents and above or freelancers.

I sympathize with the paperwork and accounting headache you're dealing with. I think I'm in Doug's camp. If you can't achieve proper classification, just make sure the money is the same after all is said and filed.
 
I posted about this a few years (maybe 3 or 4?) ago. It has happened to me a couple times a year, starting back then.
Because it is almost always for a national network, they of course want you to hurry up and get their video, and then
deal with the paperwork later. And of course this paperwork tends to take at least a day. Because, you must
'become an employee'. They have you fill out so much useless garbage. And then you must go find a notary and have it
all notarized. Then send it back. In my case, being in Alaska, I am often 4 hours earlier than them, and so emails I send
at lunchtime are usually not answered until the next day. So the process always takes longer than it should.

The second time, this happened, they told me AFTER they got the video and my invoice (and after they had agreed to my
day rate!) that their company policy was to pay union operator rate and no more and since my day rate was more they just
paid the hourly union rate. I of course, raised a stink and said I wasn't in their union, didn't receive health insurance, retirement,
or anything else and they ended up paying me the rest of my day rate as 'gear rental.' Which is fine, if that's how they need
to tweak things to get it to fit into their dumb corporate policy.

This May, I was hired by a national show which everyone here has seen. I worked two days, and they have
paid me about 40% of what they owe me. because of this stupid new freelancer law. Again they claim I need to
get an program on my computer, then use the program to install an app which can help me get reimbursed for
the use of my gear. Then the program tells me I am not authorized to download the app. I have to email tech
support and it takes them a few days to get back to me. They get me authorized to download the app but it
is only for parking fees, gas, taxi rides, meals, etc. After a couple days, they get it set up for gear, but then I
can't submit it because there are 'expense errors' and 'show name errors' in the report. Finally after a week of
back and forth they get that fixed but then I am told I need to have the report signed off on by the producer who
worked with me in Alaska....almost 4 months ago. I finally get that done and now am waiting for the next problem.
Not to mention I can't write off expenses like I normally do.

Because of this I have added an $800 'pain in the butt' fee to my day rate when any of the big networks
call me.
 
In the UK, we're having similar issues from Her Majesty's Revenue and Customs about status, but the clients generally sort how they deal with you before giving you work. We have a late payment scheme in law too, which people usually use as a pursuasion tool rather than take action - if you invoice and they don't pay, you can use the law to add a specific amount to the bill each month it is left unpaid. We also usually have success when the client emails you with confirmation of the rate, as in we need your for 2 days, at £X per day plus £X for bla bla. This is sufficient to pretty much ensure they cannot wriggle out of it. Many try, but if the person is genuinely self-employed, or a Ltd company, it normally works. Here though, it is made worse because the HMRC can decide at any time to change the rules and the common thing is to suddenly determine that the contract should have been PAYE - Pay As You Earn, where the employer deducts tax and our National Insurance. In many cases the job is over and the 'employee' long gone and the employer has to pay all this themselves. As a result they become very cautious. I managed a production - we took over a million and a half pounds at the box office. The deal with the tax people was that the role really mattered. Sound people could be self-employed and invoice, but lights and wardrobe could not - they were PAYE or nothing. The director was self-employed, but the assistant director was not.

If you agree terms here, then if they go back on the agreement, court action is quite simple, and people use it. Employers/clients tend to check if you are VAT registered and have a UTR number - a unique tax reference self-employed folks have. If you have both, here they usually take the chance, but without these, probably not. I'm not sure if our system is better, to be honest.
 
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