Several factors have coalesced in recent years to impact our attitudes to work and working conditions. Covid, digital technology, globalization, and an increased appreciation of the importance of work/life balance, have all meant that the conventional employer-employee relationship has been fundamentally changed in recent times.
New York State has seen an exponential rise in the number of freelancers and independent contractors — people who instead of being employed full time are offering their services on time limited projects. Instead of receiving an annual salary, freelancers are being paid per project, per hour, or on another pro rata basis, and are responsible for paying their own taxes, insurance and other necessary deductions.
The appeal of freelance work globally can be demonstrated by the rapidly increasing number of people who choose to make a living this way. In 2022, it was estimated that 1.57 billion worldwide work as independent contractors, of whom 70 million are based in the US, with this latter figure expected to increase to 90.1 million by 2028.
It is easy to understand the benefits of being a freelance worker, in terms of the increased flexibility provided by not being tied to a permanent contract, not having commit to a particular company or organization for an undefined period and being able to choose more freely the work and projects that are undertaken.
There are also several benefits to employers in working with contractors/freelancers. Companies can access the best talent from a worldwide pool, and it is significantly easier, even for SMEs and startups, to engage freelancers with unique skill sets that they might not otherwise be able to access.
Freelancers can reduce an organization’s overheads and employee costs, as well as the costs that are traditionally associated with onboarding new workers, plus other statutory requirements, such as sick leave and paid time off.
At the same time, there are some challenges for employers in New York State when working with independent contractors and freelancers, and organizations of all sizes and in all sectors need to be aware of their legal obligations when engaging freelance workers across a range of industries.
What are the challenges when hiring contractors in New York State?
One of the primary challenges for New York state employers in New York State is classification – it is essential that anyone being classified as a contractor does in fact have that status.
Under New York State law, classification of workers is more than just titles, i.e., just because an employer wants to define a working relationship as being between a contractor and an employer, rather than an employer and employee, that does not necessarily make it so.
For example, even if both parties consider their working relationship to be between an employer and an independent contractor, if the latter receives a 1099 Form rather than a W-2 Form, this may mean that they are technically an employee.
In addition, the United States Department of Labor proposed a new rule in October 2022 regarding the classification of independent contractors under the Fair Labor Standards Act. Under the act, there are six factors that determine whether a worker should be classified as an employee or as a freelancer, again regardless of how the worker and/or the organization may wish to view the relationship.
Further to this, the Freelance Isn’t Free Act in New York State further enhances the rights of freelance workers and contractors; S8369 helps to protect freelancers from wage theft by ensuring they are paid properly for the work they perform, on time, and at the correct rate.
Whilst there are clear business advantages to New York companies in engaging independent contractors there are also challenges and potential pitfalls. Companies found to have misclassified contractors can incur substantial fines, making it essential that they use contractor solutions that ensure compliance.
How to mitigate risk by using contractor management solutions
Contractor management solutions will not only streamline essential processes (such as onboarding, payroll, leave and termination), but also ensures that workers are being classified properly, i.e., as contractors or employees, and that they are being engaged and paid in accordance with New York labor laws, the Fair Labor Standards Act and the Freelance Isn’t Free Act. Likewise, should any deductions need to be made, a management system can ensure this is being done correctly as well.
Having a contractor management platform in place also enables easier management of multiple freelancers via the use of automated workflows, which can be customized.
For SMBs and startups, another advantage of a contractor management system is that it eliminates the need for a separate HR team. The onboarding, paying and direction of freelancers can be managed via the cloud without having to use HR and payroll specialists. For small and expanding businesses, this can deliver significant savings in wages and other associated costs.
Cloud-based contractor management systems also provide additional layers of security, helping you to keep company data safe, as well as protecting the personal and financial information of freelancers from hackers and the effects of security breaches. Rather than maintaining and updating records on a desktop or an individual’s laptop, with a contractor management solution, HR and payroll data is securely stored on external servers.
This also has the added advantage of reducing your business’ IT costs (and all the associated time and effort it takes to manage your own in-house servers). It is also more straightforward to ensure that all software is up to date, as security and other upgrades are automatically applied.
Overall, as well as all the benefits with regard to compliance with labor laws, the ease of managing multiple contractors and ensuring they are paid properly and on time, a cloud-based contractor management system also delivers a range of practical benefits, and can significantly help to reduce running costs and overheads in a number of important areas.