Avoiding Legal Issue With Freelancers And Contractors

Legal Issues

With the economy still in a rough spot many employers are turning to a work force of contractors and freelancers to round out their workforces, with many companies in the media and video-production realm following suit. And while it may seem more financially efficient to have a smaller number of full time workers and more freelancers for whom you don’t have to pay health insurance and benefits, one should still be wary about the legal issues that can arise.  Over the past 3 years, the Internal Revenue Service has set a lofty goal of investigating over 6,000 employers to make sure their workers are classified appropriately. I recently ran across a nice little article on Mashable that gives some great information on the best ways to make sure you’re handling independent contractors and freelancers in the most appropriate fashion.

The Definition Of The Word

The actual definition of contractor and employee can be difficult to pin down since the two positions can sometimes blend together and be rather hard to distinguish from each other. The Small Business Association has two relatively straightforward explanations for each one. Independent contractors are considered individuals who have their own equipment and checking accounts, work under a separate business name, have several different clients, keep business records and issue invoices. Employees, on the other hand, only have one singular employer who provides training and gives them duties to carry out. While most assume that much of the difference between the two lies in the number of hours worked, it actually boils down to their level of independence.

Avoiding Trouble

To make sure I.R.S. auditors don’t come knocking on your door, here are a few simple but important rules to follow when working with contractors. Do not have them work at your office or use any of your equipment unless it’s absolutely necessary. Contractors who have only one client—you—should be seen as a red flag. One of the most important rules is to make sure all your independent contractors are issued a 1099 form, since it’s something all auditors will want to see. Avoid exerting too much control over contractors, for example, by giving them specific hours to work or incredibly tight deadlines that would require a full-time commitment. Do not give contractors an employee handbook or ever refer to them as employees, as even simple language is something to be mindful of. Contractors should also should be issuing invoices for their work on a regular basis, since that’s the basis from which they should be issued payment.

Insurance for Freelancer and Production Companies


Recently at Interface Media Group, Women in Film and Video held a great presentation that was all about insurance for both freelancers and production groups. The main speakers were Kelly Ann Dixon-Nachodsky from GBS HR & Benefit Solutions and Richard Gottlieb from Woodhome Insurance Group, Inc. Some of the topics discussed included the effects of the new health care laws that will come into effect later this year, what individuals should do to prepare, what they will need, group coverage, and how to get insurance for companies.

GBS Logo

With so many freelancers in the DC area video and media production community, it’s obviously a topic on many people’s minds about which they are often uneducated. They’re concerned about having proper and reliable coverage while doing work such as editing, producing, transcribing, writing, etc. With the health care reforms about to hit, there’s more of a deluge of knowledge to catch up on than ever before. The event did a great job of providing this much-needed information for those production professionals.

Starting later this year around October, the new health care laws are supposed to begin taking effect. The notices for this were originally supposed to go out in March but have been pushed back to September. This health care insurance reform is being called the exchange and starting in 2014 everyone will have to be on it. The process of getting on the exchange will consist of an online program that should take the average person about 45 minutes to complete. The information that you will need to provide is your complete health and employment history. This will then be sent to the IRS for immediate verification and after that you will be given different plans to choice from depending on the information you entered.

This obviously applies to the many freelancers in the DC Production community who usually have to find their insurance. If they do not go onto the exchange, they will be penalized and have to pay either $285 or 1% of their household income with that amount continuing to increase in the following years. Some of the main roles of the exchange are make qualified plans available for individuals and employers, establish both a navigator program and a hotline for assistance, and maintain a website to help individuals compare different plans.

Other new health care reforms include a Medicare tax increase for higher earners, health FSA contribution limits, and summary of benefits and coverage and notice of plan changes. Next year, the exchange hopes to have further benefits which will include a small business tax credit, coverage of essential health benefits, a wellness program, nondiscrimination, and a 90-day limitation on waiting periods.

The presentation next moved onto how these reforms will affect smaller companies such as Word Wizards Inc. All employees need to be registered under the exchange and to do this; an employer will have to contact services like GBS to get a quote. They will need to provide information such as the name and business of physical address, full census of those who will be on the plan, employer contribution and a copy of a current invoice. One of the important things to remember is that companies with more than 50 employees will be required to pay per-employee fees to the IRS, which escalate depending on the level of coverage offered.

Richard Gottlieb from Woodhome Insurance Group, Inc.
Richard Gottlieb from Woodhome Insurance Group, Inc.

After Kelly finished her presentation, Richard came up to the floor to talk about film production insurance and the Philadelphia Insurance Company which is one of the few companies to specialize in the industry. Their minimum premium is $500 and they target productions of all sizes as well as film schools. Their coverage is quite extensive and some the main benefits they are known for include general liability, excess liability, property and automobile coverage as well as inland marine which covers negative and faulty stock, sets, props, wardrobes. Some of the claims they have dealt with include lens broken by a tennis ball during a tennis event, theft of camera equipment, property damage when crew set off a fire too close to sprinkles setting them off and a camera with 35 minutes of footage on it being accidentally run over by a vehicle.