A freelancer's plea for fair treatment under the law

For nine years, I've had a very successful career as a technical theater freelancer. I've held almost every job title in backstage theater in the Twin Cities, I’ve had steady work without a full-time job for the last three years (and even then, it was in the industry), and I claimed 22 employers on 2012’s taxes. Over a year ago, I experienced what, if I'm honest enough to admit it, can only be defined as a career-ending injury while at work. I'd worked the same event for four years, but it was under the table: no tax forms. They didn’t pay well but it was a fun little gig to work with friends… until I was injured. It was only then that I learned (but most importantly cared) about the legal definition of an employee. I should have been covered by my employer's worker’s compensation insurance, but he didn't have any. My employer thought that because I wrote him an invoice and he paid me a check, that that made it an independent contractor relationship. But although this might be a sign of an independent contractor relationship, the real definition is based off of control over the worker. I’ve done a fair amount of research on the topic but please be aware that although I have a lawyer for representation and consultation, I am not a lawyer. My goal here is to prevent others - both technicians and those who employ them - from getting caught in this legal mess by informing them of the laws relevant to their community and to discourage under-the-table dealings. To be clear, I use the term "technicians" to describe theater electricians, carpenters, audio engineers, board ops, backstage hands, stage managers, and in many cases, technical directors, and stitchers[1]. Let’s face it: the work that we do every day, as technicians and artists, is dangerous. Someday someone will have an accident or injury and it’s best to know what the appropriate measures are before catastrophe strikes. I’m on a crusade - if you will - to fight the mischaracterization of technicians as independent contractors. What makes an employee? Okay, let’s talk briefly about what the law thinks is the difference between employees and independent contractors. (Please note that the U.S. Internal Revenue Service, U.S. Department of Labor, Minnesota Department of Labor and Industry, and Minnesota Unemployment Insurance all have slightly different wording of what constitutes an independent contractor[2]. I’ve made an attempt to consolidate the meanings and provide you with a hoard of links to reference official source material.) Tax forms If the employer is smart, they’ll require a tax form. The employer believes in an employee relationship if they use a W4 and I-9 (with ID/passport). If you fill out a W9, they believe you are an independent contractor and you sign the document stating that you agree to those terms. If, as an independent contractor, you receive $600 or more from that contracting entity over the course of one calendar year, they are required by law to send you a 1099-MISC for tax reporting. This does not, however, mean that they have taken anything out of your check for taxes. (Disclaimer: I’m a technician. I learned most of what I know through looking at government websites and talking to fellow technicians, professors, an auditor, an occupational safety specialist, various for-profit and non-profit technician-supervisors, and a half-dozen lawyers. I’ve tried to boil the relevant information down to easily understood language but none of the definitions are quite as black and white as I’m presenting them. I encourage you to take the time to learn more about it.) Relationship It is difficult to argue that you believed you were entering an employee relationship after signing a W9, but the argument can be made if the details of the working environment prove otherwise. An employee relationship is established if the employer is able to determine when, where, and how, including training, the work is to be completed. This includes providing tools for the employees. Tools aren’t actually defined but I would argue a crescent wrench, ladder, and lighting instruments are examples of “tools.” Also, a relationship that is “regular or continuing” is more a sign of an employee than a sporadic one. Most theater companies produce a similar number of shows every season and a “most shows” relationship, I would argue, constitutes a continuing relationship. Consider whether or not the technician is an essential part of the business, in other words, could the business still operate without someone fulfilling that task? For instance, some companies, like Ten Thousand Things, use basic room lighting for all of their shows: a trait that few other theaters adopt. Work that is essential to the regular operation of the company is often a sign of employment. Time Elements of the work environment also include control over one’s time. Per Minnesota law, employees have specific and assigned work hours, which include a “bathroom break” every four hours and a “meal break” every eight. Employees also have scheduled arrival and dismissal times. Consider a board operator who must arrive before the show begins and cannot leave before the show has ended and has little work to accomplish outside of these specified hours. Additionally, employees are more often paid hourly whereas contractors are more often paid in lump sums. This is because a job may be estimated to cost a certain amount of time and/or resources. If paid in a lump sum which he or she offers and the company agrees to, the independent contractor might suffer a loss if the job takes longer than he or she estimated or leave early if he or she works faster than expected. Contractors are paid the full amount no matter how long a project takes whereas employees are often paid for actual time worked. As you can see, this argument about timing alone has some very challenging gray areas. Because each industry and each job relationship is so different, it’s impossible for government organizations to fit every instance into one mold. There are thousands of people who devote their working lives to sorting out the confusing pathways and definitions in labor relations. I’m choosing one target, technicians, because I have a lot of experience being one and I can tell you that in almost all instances, the law would classify them as employees. What it means for technicians Why does it matter to you, the technician? First, you need to be aware whether you are considered an independent contractor on any given gig. Remember, just because you sign paperwork stating you are an independent contractor doesn’t mean that you are by legal definition. If you are, you aren’t covered by workers’ compensation so you are responsible to provide your own liability insurance. When you get injured on the job and have to seek medical help, consider that you will have to pay your insurance deductible out of pocket, or at least a sizable (possibly series of) co-pay(s). If you were covered by your employer’s workers’ compensation, you wouldn’t pay for any of that. Also note that the leading cause of bankruptcy in America, according to a Harvard study, as high as 62% in 2007, was from medical bills even though three-quarters of these people had some form of health insurance at the time[3]. At the very least, it’s time that you started investing in health insurance and an emergency fund. Additionally, there is the issue of possible tax fraud: If you receive more than a cumulative total of $400 as an independent contractor annually, you are required by law to claim it on your taxes. (This might be the most significant eye-opener to technicians who have been classified as independent contractors.) This is true even if your contracting entity doesn’t send you a 1099-MISC or even if that $400+ comes from a number of contracts. Also, you won’t be getting any taxes withheld so you better start saving for tax day on your own. (To learn more about filing taxes as an independent contractor, including Self-Employment Tax, Estimated Taxes, and filing a Schedule C, go to http://www.irs.gov/Individuals/Self-Employed.) And finally, consider what would happen to you if you had to file for unemployment insurance. I’ll give you a hint -- none of your contractor jobs would be recordable as income. This is because Minnesota State Law deems ineligible all independent contractors. The other bad news? Any employee relationship that constitutes a “day here and there” will be very difficult to claim. This is why: Try answering the question, how many times per month have you worked at X Theater in the last 12 months? If the answer is less than a whole number (ie less than 12 days ,in the last year) than you cannot claim it. This is just another reason to make sure that you’re earning a lot more than what you believe you require. What it means for employers Why does this matter to you, the employer? You might not be following the law. Remember that what constitutes a contractor versus an employee is based largely on who has control over the worker. Would you be comfortable about your technicians doing the work their own way, on their own schedule? Is it possible to do their work on their own schedule? If the answer is a definitive no, then you decidedly need to classify them as employees. If the answer is “maybe,” you need to consider how you are influencing control and make sure you are providing the flexibility necessary to walk the walk. Although skirting the law is an option, the consequences for getting caught can be steep. Employers can be held liable for many violations of the law including general employee protections, worker’s compensation, unemployment compensation, disability, social security, and Medicare. The Special Compensation Fund unit may pursue civil penalty action for employers caught without the required worker’s compensation insurance. Depending on the severity of the incident or length of the offense, you could be liable for tens of thousands of dollars in fines. This could easily bankrupt a theater company. If one of your independent contractors tries to claim unemployment insurance, the likelihood that you will be audited by the Minnesota Department of Employment and Economic Development (“DEED”) is quite high. You may be surprised how many of our longer-standing theater companies have had to suffer through this before they systematized employment. If found guilty of misclassification, the employer could be faced with monetary penalties and/or lead to an audit from another institution. Another thing to consider is whether or not you are having a difficult time finding qualified technicians. If you consistently watch your technicians move on to “real” jobs or they start regularly turning down work offers in favor of work in other places, you may want to reconsider the sustainability of your approach. This may seem like a weak argument now but I’m hoping that it will become a major driving force in the months and years to come. The unfortunate thing is that now that you are informed, it will be much harder to claim ignorance. Pay attention here, this one is important: An employer will never get in trouble if they mischaracterize an independent contractor as an employee but if they do the opposite, they could get into some serious legal hot water. How to use this information Now that you have a quick and dirty understanding of the law and how it relates to you, what can you reasonably do? Here is what I suggest: Start talking about it. If you are a technician, talk to your supervisor or employer about how being classified illegally makes you uncomfortable. Talk to your fellow technicians about your opinions on topic. Consider turning down work if it isn’t worth the risk of potential injury. I can think of at least three instances in the last six months where my special request for employee classification was agreed to by the theater company. I have also made requests of that sort and been turned down but it was always out of regret from the employer, never hostility. It never hurts to ask. Finally, investigate tax protocol for independent contractors and make sure you are at least claiming your taxes and unemployment correctly. For theater companies, be honest to your technicians about where you are at and that you are honestly working toward change. Theater Latte Da, for instance, is already taking steps in the right direction. They started a few seasons ago by converting all actors and stage managers to employees. By the end of the 2013-2014 season, they will have converted most of their technicians as well. Additionally, Walking Shadow Theater Company has expressed interest in converting as many workers to employees as possible, although financially the company can't do this all at once. This season they hired a payroll company to start processing some employees and that infrastructure is the first step toward classifying more employees as their budget allows. Each theater company is at a different place on this journey; all that I ask is that you work within your means to do what’s right. Prioritizing the people who help you make art helps show respect, fosters community, and illustrates that theater arts is a forward-thinking culture. I understand that for some theaters, classifying employees when you have previously never “had” employees can be a big undertaking when budgets are already uncomfortably tight. For government institutions such as public schools, it can be a paper-pusher’s nightmare. I have no interest in exposing the companies that I know to be breaking the law. I am offering to help make change possible in any way that I can by working together. The Minnesota Department of Labor and Industry offers free workshops to explain to employers exactly this topic and it can be catered, within reason, to our industry. I’m willing to help set that up but we need at least 20 people to commit to attending. This workshop seems like a safe first step. Looking toward the future, maybe we hire or create a community payroll company to dispatch technicians to different companies under one “employer” so as to reduce costs for all. I’m willing to fight for whatever solution we come up with; I just need you with me. Footnotes [1] The rules that define employees also hit astoundingly close to home for actors or even designers. Unfortunately, the argument for these persons is a bit harder to make because the line between “lackey” and “artist” is intentionally skewed. Despite being highly skilled, technicians are vastly subservient and for this reason I believe they have a stronger case. Let’s call it... a place to start. [2]Like an astounding amount of legislation, a couple of very significant acts are waiting to be taken up by Congress that hopes to clarify classification of employees and independent contractors. [3]I realize that 2007 was a very long time ago but new research has not been released. I’d be surprised if modern findings would be drastically different as the health costs and the number of un- and under-insured have continued to rise dramatically, at least prior to the Affordable Care Act.