Avoiding Legal Headaches And Confusion When Working With Freelancers
From quick projects to long-term engagements, Upwork makes it easier for your company and freelancers to work together. So you can focus less on finding help, and more on getting your work done.
For independent contractors on Upwork, you can pay in one click. We also make contracting and confidentiality easy with the general contract terms in our User Agreement. If your freelancer should be classified as a W-2 employee, you can use Upwork Payroll to handle employment paperwork, payroll, benefits administration, and HR needs. It doesn’t get any easier.
The first question we often hear is, “how do I know if my freelancer should be an independent contractor or an employee?” We posted several articles on Upwork’s Hiring Headquarters to get you started. But because only you know the unique requirements of your project, it’s your responsibility to classify your freelancers correctly.
By law, how you treat a worker, and the project’s requirements, could change them from an independent contractor to an employee. And if you accidentally get it wrong, it can lead to fines and back taxes.
For a quick refresher, below are a few classification tips you should know:
Treat freelancers like businesses
Freelancers choose to be on Upwork because the platform makes it easier for them to advertise their own business. To prevent misclassification, don’t treat them like temporary employees—treat them like businesses.
Also, because you pay them through the Upwork platform, you shouldn’t need to file a 1099 for your freelancers. As the payment settlement entity, our escrow agent files 1099-Ks when necessary.
Upwork simplifies the process and helps me get my stuff done without worrying about all of the administrative processes. – Upwork Client
Know the difference between an IC and an Employee
In the U.S. alone, there are several “tests” to determine your worker’s classification. Unfortunately, they aren’t black and white. Because classification is a balancing act of several factors, it can create some gray area. If you’re unsure, you can check out the IRS 20 Factor Test.
For U.S. workers, the quick-glance chart below shows the general differences between an independent contractor and an employee:
These factors may vary, but for many freelance engagements, the classification should be relatively clear.
Independent contractor do’s and don’ts
Again, remember to treat independent contractors as businesses. You can specify the work you need done and any deadlines, but respect their independence.
- Do let them decide how much to charge for each project.
- Do require they pay their business expenses.
- Do allow them to choose their own work location, methods, and work hours.
- Do permit them to work for other clients.
- Do let them delegate tasks to their subcontractors or employees.
- Don’t provide tools or equipment to do the work.
- Don’t train on skills needed to do the work.
- Don’t specify process steps or work methods.
- Don’t include them in regular or frequent meetings, calls, or activities that aren’t relevant to their project.
- Don’t require work that’s not specified in an agreed-upon contract.
Have a proper contract in place
Your contract doesn’t need to be extensive, but you should clearly lay out key project parameters. Generally, your project description (included in the job post) serves as an important part of the contract. For more:
- Check out this video on creating contracts on Upwork.
- SHRM offers a helpful contract template.
- You can also use the Service Contract terms in Section 8 of Upwork’s User Agreement. The User Agreement automatically covers your engagement, unless other terms are agreed to by you and the freelancer you’re engaging. And as long as the provisions don’t change Upwork’s obligations or restrict Upwork’s rights under the Terms of Service.
Use Upwork Payroll for W-2 employees
Sometimes, you may need freelancers to work onsite, during specific work hours, and so on. Other times, the work specifications place them in the potentially dangerous gray area between independent contractor and employee.
If you’re unsure about classification, or you want more control over how your freelancer will work, use Upwork Payroll. Hiring a W-2 is a complicated and risky process, but we make it easy for you by taking care of payroll and benefits administration. With Upwork Payroll, a staffing agency on the platform becomes the worker’s employer.
When you use Upwork Payroll, hiring a W-2 employee becomes almost as easy as engaging an independent contractor. What’s more, you’ll save time and money—up to 40 percent compared to traditional staffing agencies.
Disclaimer: This article doesn’t address all legal or tax issues for freelancers, and it cannot and should not be relied upon as legal or tax advice.