Diversity Woman Magazine

SUM 2017

Leadership and Executive Development for women of all races, cultures and backgrounds

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We Mean Business > d i v e r s i t y w o m a n . c o m S u m m e r 2 0 1 7 D I V E R S I T Y W O M A N 29 e more open both parties can be about questions, concerns, and criticism, the more successful the arrangement. e best freelancers are able to seam- lessly integrate into an organization, where employees are as comfortable with their project-based colleagues as they are with other full-timers. Cultural fit is at times trial and error; you may want an independent contractor to drop into the office or an event on a trial basis before hiring the individual for a larger project. You can also establish cultural fit in the in- terview phase by asking pointed questions that may play to the freelancer's values and opinions about how certain situations should be handled. For the best cultural fit, it often pays to ask for referrals from like-minded entre- preneurs, as Carol Galle does. As president and CEO of Special D Events, a meeting and special events planning company based in Ferndale, Michigan, Galle hires freelance help on a regular basis. "I rely heavily on referrals and will also find freelancers on LinkedIn," she says. "Most of the time it works out beauti- fully—so well, in fact, that I have hired some of my freelancers to transition into full-time staff." Legal and tax considerations Ride-sharing giant Uber has been at the center of some of the most controversial news in the freelance, or gig, space as of late. e beef: whether or not the com- pany should or does treat its drivers as employees or contractors. Drivers and corporate are fundamentally against each other on the issue. Drivers have even filed a number of class action suits demanding reimbursement of expenses, withholding of taxes, and payment for overtime. While small businesses may not be hiring freelancers at the scale of ride- sharing companies—and therefore may not be grabbing the attention of the government—it still pays to know the law. A lack of knowledge can result in hefty penalties, both tax and legal. If you use an independent contractor in- stead of an employee, unless you follow the well-defined rules, it can look as if you are trying to find ways to avoid pay- roll and unemployment taxes. A great place to start is the IRS definition: "e general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. e earn- ings of a person who is working as an in- dependent contractor are subject to Self- Employment Tax." e definition continues: "You are not an independent contrac- tor if you perform services that can be controlled by an employer (what will be done and how it will be done). is ap- plies even if you are given freedom of ac- tion. What matters is that the employer has the legal right to control the details of how the services are performed." Scott A. Mirsky, head of Mirsky Law Group in Rockville, Maryland, explains the importance of making the distinc- tion between employees and freelancers. "You shouldn't provide them any training or tools like a computer," he says. "ey should invoice you for their time and have their own EIN [employer identifica- tion number]. Also, be careful that you don't have freelancers do the exact same work as employees because they could claim that they are actually an employee. "Remember that an employer controls the work environment for an employ- ee—the hours they work and where they work—but an independent contractor is free from control and only concerned with turning in the finished product." But what if your freelancer is located abroad? What are the tax implications? A US citizen paid $600 or more in a calendar year must receive a 1099 for a business owner to take a deduction, but a 1099 isn't necessary if the freelancer is from another country. e best advice: ask before you assign any work. "You need to establish if they are a citizen or resident right off the bat," says Abby Eisenkraft, CEO of New York– based Choice Tax Solutions and author of 101 Ways to Stay Off the IRS Radar. "If they are a nonresident alien, you don't have a requirement to file a 1099 because they don't have a Social Security number, etcetera, but be careful. You might hire someone who is a dual citizen. You can't assume anything just because you are contracting with a foreign worker." The best thing to do when hiring your first freelancer is to get profes- sional help from an experienced and credentialed tax accountant and tax at- torney. Also, "before you pay anyone a dollar, get that W-9 form back to you," says Eisenkraft, referring to the IRS form verifying independent contrac- tor status, which a freelancer must give each new client. "Some business own- ers forget to ask for that information in advance and then ask for it later, only to realize the freelancer doesn't want to give their Social because they are committing tax evasion themselves. Be careful and do your due diligence up front to avoid pitfalls later on." Possibly the most important tax and le- gal factor in hiring freelancers is to make sure they are, in fact, freelancers, just as Mirsky says. e IRS is wise to business owners doing the opposite and treating people as employees, but distributing 1099s at the end of the year often pro- duces red flags with government officials. "If something looks like a duck and quacks like a duck," says Eisenkraft, "you can't call it an orange." DW Based in San Francisco, Katie Morell joined the freelance economy eight years ago as an independent journalist after working for years on staff at newspapers and maga- zines. Read more of her work at katiemorell.com. The number one issue most freelancers deal with when they get contacted by a new client is a lack of set expectations.

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