A freelancer is an individual who earns money by project and works for a person or organization short-term. Because freelancers are not employees of the company, they can work on other tasks at the same time. Freelancers can do their freelance work on a full-time basis, or do contract work in parallel to a full-time job.
As an independent contractor, a freelancer must sign a contract that specifies what tasks they need to complete, and agree to a given fee based on the time and effort required to complete the task. Rates may be on a flat rate, hourly, daily, or project-based.
The US Internal Revenue Service (IRS) classifies freelancers as self-employed. Unlike company employees, the payer does not withhold their taxes, paying them in full. Therefore, the payment of income tax is the sole responsibility of the freelancer. Typically, an estimated tax amount must be paid quarterly. In addition to income tax, freelancers are subject to an additional self-employment tax.
Direct deposits for freelancers are becoming increasingly popular as more workers transition to remote work. Direct deposit means depositing money electronically into a bank account without using a paper check. Technically, it is a transfer from a corporate bank account to a freelancer account via the Automated Clearing House (ACH) network.
Paying Freelancers by Check
Checks paid to freelancers are losing favor because they are inefficient for employers, create complex logistics, and might result in errors and payment issues.
When freelancers are paid by check, payroll managers first need to process the payment, and within a few days they send the check by physical mail to the freelancer, or distribute it in person. In some cases, payroll managers will hold the check until it is claimed by the freelancer, which creates security issues.
Another challenge is tracking checks until they are deposited. Freelancers might lose their checks, and they can get lost in the mail (or worse, stolen). This means that a new check must be issued, which can be time consuming and frustrating for employers and freelancers alike.
Paying Freelancers via Wire Transfer
Wire transfers are commonly used for large transactions, and are increasingly being used to pay freelancers as well. Wire transfer works by receiving funds from one person’s bank account and depositing it into another person’s bank account, usually through a wire transfer company such as Western Union. Some providers allow same-day wire transfers, but transfers can take up to three days and usually include a transfer fee. A major advantage of wire transfers is that they are often the fastest way to transfer funds to foreign countries.
Freelance Management Systems (FMS)
An FMS allows freelancers to get paid the way they want, using almost any payment method available. Most FMS systems meet the 1099-K definition and can handle all tax compliance requirements such as issuing 1099 forms and collecting W8/9 forms.
A similar solution is freelance marketplaces (such as Upwork or Fiverr). These marketplaces too handle payments and tax compliance, and can also help organizations find and qualify freelancers. However, they also charge 10% to 25% of the freelancer’s fee in commission.
Paying Freelancers: Tips and Best Practices
Setting the Price
The first step is to ask the freelancer if they are paid by the hour or at a fixed price. Also, many freelancers want part of the amount paid upfront, especially if you are a new customer or they are starting a large project. It is important to receive a formal quote from the freelancer stating the price and the exact work and deliverables required in exchange.
Ground Rules
Contracts need clear language that explains how long the project will take and what will happen if it is not completed. It must be clear when payment is due and whether payment is dependent on specific milestones, and who owns the completed work.
An effective contract defines a timeframe for the project and handles all possible cases—for example, it should define what happens if the freelancer is late, or if the company ordering the project does not provide feedback on an agreed timeframe.
Another contingency the contract should address is late payments—whether the freelancer will be eligible for late fees, and whether the work done will be withheld.
Consider Payment Terms
Here are common payment terms:
Upfront payment—involves paying the entire cost of service in advance. Since this is a big risk, you should agree to these terms only if you trust the freelancer.
Paying after completion—involves paying the entire service cost only after the freelancer has completed the work. Here, the freelancer takes the biggest risk. This option is considered fair only if the freelancer does not have big upfront investments.
Milestone payments—involves parsing out payments as you go. Typically it means paying half upfront and the other half after completion. This option is ideal for commissioning a large project spanning months.
Hourly payment—involves paying freelancers per hour, using time-tracking systems or other options, as agreed and contracted in advance.
Ensure Compliance With Tax and Labor Laws
Freelancer contracts must comply with tax laws, but this can be challenging. For example, US tax law does not require US companies to pay, withhold, or report taxes for international freelancers outside the US. Employers must also comply with the labor laws of the country in which the freelancer is located, even if the company is located in other jurisdictions.
Conclusion
In this article, I covered the basics of freelancer payments, and proposed four tips that can help you manage freelancers more effectively:
Setting the price—always make sure you have a clear agreement with the freelancer clarifying what deliverables they need to provide and their compensation.
Ground rules—ensure there are terms in place for situations like late delivery or breaching of contract terms.
Consider payment terms—payment terms must be defined in advance with each freelancer. There are various options including upfront payment, payment upon completion, payment by milestones, and payment by the hour.
Ensure compliance—make sure you understand the legal implications of working with your freelancers and that you are meeting regulatory requirements in your country, as well as the country the freelancers operate from.
I hope this will be useful as you improve management and cooperation with your freelance workforce.
Sexual misconduct is a very serious issue and can have devastating consequences for students. If a student is wrongly accused of sexual misconduct, it can destroy his or her student life along with his or her future career.
That’s why students need and deserve protection against false sexual misconduct allegations. That’s what Title IX is about. The consequences can be much worse for high school students, which is they must have a high school Title IX lawyer by their side in such situations.
Title IX prohibits educational institutions from discriminating against any American student based on sexual identities, such as denial of the benefits of any educational programs that receive federal funding.
History of Title IX
The Title IX of the United States is more than 45 years old and was put forward by Congress in 1972. Initially, the law was about only gender-neutral decisions in schools.
For instance, the law prohibited discrimination based on gender against any student during the admission process, athletics opportunities, and all other educational programs.
Currently, Title IX is much bigger than that and covers all sorts of sexual misconduct and false sexual misconduct allegations.
Title IX in Universities Vs. High School
While Title IX provides equal protection to any student, whether the student studies in a federally funded university, college, or school, K-12 schools do not seem to take it very seriously.
Universities and colleges take Title IX seriously, but that’s not the case with K-12 schools. Many K-12 schools do not protect their students under Title IX, and some even impose severe sanctions on students and even expel them without hearing their side of the story.
That’s why such students need to have a competent high school Title IX lawyer by their side who can protect them against false allegations under Title IX.
Why Do Students Need a High School Title IX Lawyer?
Well, most high school students have little or no idea about what Title IX is and what their rights are. They get severely panicked when wrongly accused of sexual misconduct. The consequences can be detrimental to their education and mental health.
That’s why they need an experienced attorney who can protect their rights, cross-examine all evidence, and protect them against false allegations.
Conclusion
The Title IX of the United States prohibits any discrimination based on sex against any student anywhere in the united states. It applies to all schools and educational institutions that receive federal funding. Wrongful sexual misconduct allegations can destroy a student’s whole life, and that’s why Title IX is in practice to protect them.
It is important for both companies and their workers to understand if the worker is considered an employee or a contractor. This has several implications:
In the US, if the worker is a contractor, payers must submit Form 1099-MISC to report income paid in the previous year. Otherwise, they submit a W-2 form for an employee.
If the worker is a contractor, the employee does not pay benefits, such as vacation time, sick leave, pension, and health insurance. Otherwise, the employer needs to pay benefits according to local laws.
In the US, the IRS has the authority to decide if a worker is an independent contractor or not. In general, the test of an independent contractor is whether the person or company paying the worker tells them what to do and how. In some cases, it can be complex to determine whether a worker is an independent contractor or not.
Examples of occupations in which workers are almost always considered as independent contractors include medical practitioners, lawyers, accountants, electricians, and building contractors.
How Is Independent Contractor Income Paid and Reported?
Employees are usually paid on a consistent schedule, such as weekly, biweekly, or monthly; contractor payments are different. The worker and the payer agree on a payment schedule. Payments could occur on a regular basis (a retainer agreement) or according to specific deliverables, and can be delayed (e.g. a contractor could receive payment Net+30 or Net+60).
Payments to independent contractors are not considered “wages” by the IRS, and the payer does not deduct any taxes. In other words, no Federal income tax, social security or Medicare taxes are deducted from the amount paid to the contractor.
During the income tax season, payers must file Form 1099-MISC to report all income paid to the contractor in the previous year, as long as the contractor’s income is higher than $600. The form must be completed and postmarked by the last day of January each year.
Considerations Before Choosing How to Pay your Contractor
Contractor Classification
There are several types of contractors, each requiring a unique payment process. Self-employed professionals providing short-term services are typically classified as independent contractors, 1099 contractors, or freelancers. These are often external workers who can choose their clients and are responsible for their insurance, taxes, and benefits.
Skilled professionals hired through an outsourcing company or an agency to engage in long-term projects are typically classified as W-2 contractors. They are responsible for their taxes, but the outsourcing company or agency may offer perks and insurance benefits. Some contractors own a limited company, which increases their similarities with freelancers. In these cases, it may prove difficult to classify the contractor adequately.
Taxes
Each contractor classification—W-9 or independent contractors—requires filling out different tax forms and documents. The information should include the relevant and correct details on record because inaccuracies may result in fines for you or the contractors.
Number of Contractors
You can use two main methods to pay contractors—manually or automatically. Manual payment can work if you pay a small number of contractors. However, the more contractors you engage with, the more complicated the payment process.
When paying contractors, you need to verify timesheets, cross-check charges, maintain accurate records for audits, and ensure payments are made according to each contractor’s terms. Automated payments can help make this process more efficient, accurate, and faster.
Contractor Geographies
The geographical location of the contractor can add a layer of complexity to the payment process. Local payments can be easy to handle, but international payments typically involve additional bank authorizations, conversion charges, and processing fees. These factors can significantly impact your project’s budget and timeline.
Ways to Pay Independent Contractors
Direct Deposit for Contractors
With the COVID-19 pandemic (a global pandemic) and more people working in remote areas, direct deposits to contractors are becoming more common. Direct deposit means depositing money electronically into your bank account without using a paper check. “Electronic” means a transfer from a Company’s bank account to the independent contractor’s account.
Paying Independent Contractors by Check
Checks paid to independent contractors are increasingly unpopular for employers because they are inefficient and due to the complex logistics involved.
When paper checks are used to pay contractors, payroll managers have to process payroll and receive authorization for the check, and then physically mail it to the contractor or distribute it in person. In some cases, if it is not possible to deliver the check, it must be held in the office, which raises security concerns.
Another complexity is tracking checks before they are deposited—in some cases, contractors may lose their checks before they are deposited. A new check must then be issued, which is time consuming and frustrating for both payer and contractor.
Paying Independent Contractors via Wire Transfer
Wire transfer is often used for large transactions. Although less common, it can also be used to pay independent contractors. Wire transfer works by receiving funds from one person’s bank account and depositing it into another person’s bank account, usually through a wire transfer service such as Western Union. Some companies allow same-day wire transfers, but transfers can take up to three days and usually incur a transfer fee.
Freelance Management Systems (FMS)
A Freelancer Management System (FMS) provides multiple payment methods to ensure that contractors get paid any way they want. Most FMS platforms are 1099-K compliant, meaning they can handle all tax compliance requirements such as issuing 1099 forms and collecting W8/9s from contractors.
Another option is to work with marketplaces for freelance services. These marketplaces handle payments and tax compliance, but also charge significant marketplace fees.
Conclusion
In this article, I explained the basics of contractor payments and showed four ways to pay your contractors:
Direct deposit – depositing funds directly to the contractor’s bank account.
Paying by check – a traditional method that is going out of favor because it creates complexity, frustration, and security issues.
Paying via wire transfer – a faster method, but which still requires some logistics.
Freelance Management Systems (FMS) – an automated system that helps manage contractor payments.
I hope this will be useful as you find more efficient methods to manage and pay your independent contractors.
