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Questioning the Freelance Dilemma

(originally on Motionographer)

recent article at Animation World Network has stirred up many passionate comments from freelance visual effects artists in the industry as well as a response from one of the Employer Of Record services that now provide a legal means for many of the top studios in the Motion Design industry to hire independent workers.

At issue seems to be a question of the classification of workers on company premises, who are usually under supervision and are not legally incorporated as a separate business entity. Many of us often work this way for various studios and have never had a problem before. Yet, many studios who have recently been audited are now seeking a layer of protection between them and the workers they routinely hire.

Employer-side payroll taxes, usually paid for by companies, are deducted by the Employer of Record services as part of their fee, often totaling more than freelancers expect to pay with self-employment taxes. Many artists now feel like they are paying for the privilege of working. “I can’t help but feel like I am getting dumped with the majority of the expenses for the company I am working for covering their ass with the IRS,” said one NY-based freelancer.

We don’t claim to have the answers to this problem. We’re not lawyers or accountants, and every tax season confuses us anew. On the one hand both independent artists and production companies benefit from a mobile workforce that provides low overhead. On the other hand, there are legal and financial requirements that each side should take into account.

What’s your take? If you’re freelance, have you been required by clients to join an Employer Of Record service? And what’s your impression of the benefits and trade-offs of such a move? If you’re a studio owner, how would you like to work with design professionals who choose for financial and personal reasons to remain independent workers? Is there a middle ground that we can all agree on to find a common-sense solution to these issues?

For more information, see these links:
AWN: IRS and the Freelance Dilemma
IRS: Employee or Independent Contractor
CA Independent Contractor FAQ
MBO Response
Freelancer’s Union Forum: 1099 No More! Time for W-2??

EDIT: Adding this link (02/15/10): Incorporation Not a Substantive Factor In Determining Worker Status
EDIT: Adding this link from jultani in the comments, thanks! (02/18/10): U.S. Cracks Down on ‘Contractors’ as a Tax Dodge

EDIT: Added (03/01/10) FXDAG: Organizing Employers of Record?

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