Freelancer Compliance: 5 Ways to Keep Your Company Safe When Working With Freelancers

In the wake of COVID-19, a growing number of employers have found themselves relying on freelancers to get things done. Your organization may be among them.

The use of independent contractors was growing even before the pandemic, and more and more professionals turned to freelancing throughout 2020. By 2027, more than half of US workers may do freelance work in some capacity.

Historically speaking, many organizations have manager their freelancers rather loosely. However, as freelance talent makes up an ever-greater share of the workforce, it’s critical that companies involve their legal, finance, and HR departments in the freelancer management processes. Not following proper procedures increases your business’s exposure to risk — including, potentially, hundreds of thousands of dollars in penalties for employee misclassification.

To make sure your company complies with all the relevant freelancer regulations, here are five crucial things you can do to decrease organizational risk when recruiting, hiring, and onboarding contract workers:

1. Put a Formal Contract in Place

Many companies forego contracts with freelancers, either because they need a job done quickly or because they already know the independent contractor and don’t feel the need for such formalities. However, in some jurisdictions, contracts are legally mandatory.

For example, New York City’s Freelance Isn’t Free Act requires contracts for any arrangement delivering $800 of services or more. The act also requires prompt payment for services rendered. Other countries have established similar laws, so don’t assume you’re out of the woods just because you’re not working with freelancers in New York City. Your best bet is to make it a company requirement to use contracts for any and all freelance workers.

A few tips to keep in mind:

• Make sure your contract templates align with the laws in your country and region, as well as any applicable laws in the freelancer’s location.
• Read up on the types of independent contractors that fall under any relevant laws’ contract requirements.
• Ensure your company has mechanisms in place to provide timely, accurate payments to your contractors.
• Confirm your HR department, recruiters, and hiring managers know and follow applicable laws and regulations.

In short, water-tight contracts are no longer a formality reserved for full-time employees and third-party vendors. You need to incorporate them into your freelancer hiring process, too.

2. Always Pay on Time

This has been a major point of tension between independent contractors and companies for a while, and rightly so. The average member of the Freelancers Union, a US nonprofit advocating for fair treatment of freelancers, is owed more than $10,000 in unpaid invoices and spends 36 hours chasing down clients for missing payments.

Usually, employers are not deliberately trying to skip out on the bill. Rather, most companies use systems with payment schedules designed for full-time employees or third-party vendors. Unfortunately, that makes it all too easy to make inaccurate payments or miss payments completely.

The best way to fix this issue is to centralize your freelancer payment information, which you can do relatively easily through a freelancer management system. This allows you to quickly and easily track and approve project milestones and automatically pay freelancers once their jobs are complete.

3. Know Your Intellectual Property Rights

Taking intellectual property ownership for granted is a mistake I often see companies make when hiring freelancers. In actuality, contractors retain ownership of anything they produce for a company unless there is a specific agreement in place that explicitly grants intellectual property rights to the employer.

Without a contract containing clear-cut intellectual property provisions, a freelancer will have a strong case if any lawsuits crop up. The good news is you can nip intellectual property ownership issues in the bud by clearly establishing who has ownership once a project is finished. Do this by drafting up a contract with specific intellectual property provisions before a contractor starts any work.

3. Properly Classify Every Hire

A booming freelancer market means legal systems across the country are devoting more attention to freelancer classification. With this increased attention comes an increased risk of being audited for worker misclassification.

The tricky part is that there isn’t a single cut-and-dry method of classifying independent contractors. Individual states, the federal government, and the Internal Revenue Service all use different classification parameters that may contradict one another.

Companies that don’t make an effort to carefully document and manage their freelance workers are far more likely to misclassify employees, which can land organizations in hot water with the government. This could mean hefty financial penalties or even jail time, not to mention the damage to your company’s reputation.

There’s no way around it: You must ensure every single freelancer is classified correctly.

4. Protect Freelancers’ the Same Way You Protect Employee Data

By now, most companies have put well-defined policies in place to adhere to data protection laws like the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) — but do your data privacy protocols also take freelancer data into account?

The fact of the matter is freelancer data should be treated with the same care and protection as full-time employee or customer data. Instead of relying on spreadsheets or other unsecured methods of collecting and storing freelancer data, I recommend using a secure, encrypted freelancer management system. This will decrease the chances your freelancer data will be compromised and make it easy for you to share the right data with the right team members in a secure way when necessary.

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With new freelancer compliance regulations emerging frequently, there’s a lot to keep up with. In my opinion, the easiest way to abide by today’s laws and stay ahead of tomorrow’s regulations is to educate yourself and invest in the right freelancer management tools. You’ll mitigate much of the risk inherent to working with freelancers while also putting yourself ahead of the game when it comes to attracting and maintaining good relationships with top freelance talent.

Shahar Erez is CEO of Stoke Talent.