According to data from the Bureau of Labor Statistics, as of 2015, 15 million people were self-employed in 2015, or 10.1 percent of all U.S. workers. This includes those who choose to incorporate their businesses and those who do not. In an age where more and more people are eschewing the idea of staying with one employer for the long haul, some are looking to cut out the middle man. While this often leads to more work and less security, especially in the beginning, the autonomy and potential flexibility are potential draws for many people in all types of fields. Some choose to start their own businesses or use their skill sets as contractors for various companies.
What many people trying to leave the traditional employee workplace don’t realize is that there is a whole bevy of different things to consider when self-employed that you generally don’t think about otherwise. Here are some of the unique legal situations inherent to self-employment, and some of the things you can do to stay prepared.
Understanding Your Rights
The Employee Rights Act is something that we owe much of our current protections to, but sometimes, especially if you are a contractor, what makes an employee vs independent gets murky. Many laws have covered this topic, but as a start, understand that a self-employed contractor is:
- not entitled to any statutory employment rights;
- not entitled to statutory paid annual leave;
- not entitled to statutory sick pay;
- not entitled to statutory maternity leave, paternity leave, adoption leave and parental leave, including statutory pay; but
- entitled to be protected against unlawful discrimination because of a ‘protected characteristic’
That last point is very important when it comes to your options as a self-employed worker. Depending on the nature of the business and what services/goods they offer, it may even pay off to talk to an employment lawyer. According to California lawyer Corbett H. Williams, an employment lawyer’s reach extends to many different types of cases, from class action to discrimination lawsuits to wrongful termination cases. Not all of these are applicableto the self-employed, but you still are entitled to certain protections. Don’t be afraid to use them.
Understand that many businesses will turn to contractors for a combination of lesser liability and saving money. The intent may not be to rush to the bottom in terms of fees, but rather that it may be too expensive to bring on a full-time member of staff with certain skills. However, if a client was to misclassify you as an employee, they may be required to provide benefits and pay back taxes. If you feel that a line was crossed, complete Form SS-8 to ask the IRS to make a determination. If the IRS determines you are, bring on an attorney right away.
Keep Yourself Protected
A lot of the steps taken when you first open a business aren’t just for classification reasons, as they may also help you out of a legal jam. For example, any business that doesn't use the legal name of its owner as part of its business name must register the name as a fictitious business name. This allows customers to reach out to you and pursue legal action if needed, but also protects you as an individual from getting sued personally, as well as your personal finances versus those of the business.
Perhaps the biggest thing you will want to be mindful of, though, are your taxes. All independent contractors who make more than $400 per year from business activities must report their business income to the IRS. Depending on the size and nature of your business, an accountant may be the first person you reach out to, but an attorney with expertise in small businesses may not be a bad idea as well if you have any questions or are already in some tax trouble. At the end of the day, flexibility as an independent worker comes with responsibility. Doing your proper research and consulting with the right people will keep your source of income safe for you and the people you support.