By Deborah White
Which are you? 2020 has been a year that no one is ever going to forget. It has given birth to ingenuity and innovations to, in some cases, keep food on the table. One of those innovations is the striking rise in remote workers.
Remember the days of an hour (or more!) long commute? Stuck in traffic moving at a snail’s pace, in wicked icy weather and wondering if you’re going to get to work on time? Remember WISHING you could just work from home?
I have to admit, that thought ran through my head a million times when I was a corporate employee. I could have done everything from my desk at home. In a perverse way, thank Covid you can do that now. I know that traditional work is the preferred method, not by me, but some people are more comfortable with that type of structure. But, if you’re one of the brave ones and want to make your writing career a permanent work-from-home gig, you really should know what the different remote workers are.
Types of remote workers
There are 3 basic types of remote workers.
- Contract Worker
- Remote Employee
Let’s break these down a bit. It’s important to know what your classification is. If you understand the differences between these types of workers, it will prevent problems from arising because of misunderstandings. Some employers don’t understand these differences and would hire a freelancer but really want an employee.
If you are being classified incorrectly, you could also miss out on certain benefits. They entitle employees to health care, retirement plans, workman’s comp, overtime just to name a few. If you’re an employee and classified as a contractor or freelancer, you could miss out on these important benefits.
Also, your status will help determine your employer’s expectations and you set a few of your own.
What is freelancing?
The freelance definition is that:
- A freelancer typically works on short to long-term projects for many clients at a time.
- Works from a location that is separate from the client’s location
- Sets their own schedule that works best for them.
- Chooses where they would like to work
- Determines their own rates based on their location and/or project difficultly
- Processes their own tax payments.
What is a contractor?
A contractor can be like a freelancer in a lot of ways. The biggest difference between a contractor and a freelancer is that a contractor will work for one client at a time for a set period until the job is completed.
- Works for one client at a time for a longer time frame until the job is completed
- Temporary employee that finds his own clients or works through an agency
- Could work from a client location or independently depending upon the client’s need
- Must process their own taxes
- Will receive W-2 if working through an agency
What is a remote employee?
2020 has blurred the lines of a traditional employee who goes to the employer’s location, works a shift, and goes home. Remote employee’s now have similar benefits of working from home as freelancers or contract employees with some substantial differences.
- Is an employee of a company
- Enjoys the benefits provided by a company such as health insurance, workman’s comp, unemployment insurance, 401K’s and so on.
- Permanence. You enter this arrangement based on an understanding of continued employment. Freelancers or contract employees who understand that the project has an end date.
- The company handles the taxes for federal, state, and local
- Employer determines work hours
- Pay rate is set and determined as negotiated before employment begins
- Works for one company at a time
How the IRS determines classification
The IRS does not separate the classification of freelancer and contractor. If you are providing services to a business without a permanent relationship, i.e. without withholding taxes, you are an independent contractor, not an employee. The IRS describes an independent contractor as:
The 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…
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
So, as you can see, misidentifying the type of worker can have some serious consequences for the business and worker. If a business uses the incorrect category in identifying a worker, for instance, identifying a worker as an independent contractor when they are actually an employee, makes that business liable for any taxes for said worker.