Signed late last year and set to go into effect on May 15, 2017, New York City’s Freelance Isn’t Free Act has set off alarms for companies using freelancers, or independent contractors (ICs), in the Big Apple.
While the law leaves a lot unexplained or open to interpretation, its goals are to establish and enhance protections for freelancers by creating and protecting their right to a written contract, timely payment, and freedom from retaliation should they choose to enforce their protections under the Act. The good news for businesses is that many companies are covering much of what the law covers already, so vast changes may not be necessary for future IC engagements in NYC.
Scope of the Act
- It’s local: Don’t forget that the Act only applies to workers or work with a NYC address or location. While the law doesn’t specifically state that it applies only to ICs based in NYC, its stated goal is to protect freelancers. Therefore, err on the side of being over inclusive on this one and assume that the Act applies to all IC engagements where any of the following is true: IC has an NYC presence, hiring party has an NYC presence, and/or any part of the work is performed in NYC.
- It applies to individual ICs: The new law applies to individual contractors (incorporated or not) and to the parties contracting with or hiring them. It also excludes doctors, lawyers, or statutorily-exempt sales representatives. The take-home here is that if you’re not sure if you’re working with a solo contractor (often times ICs are single-member LLCs and the like), inquire prior to engaging.
- It doesn’t apply retroactively: Thus, all engagements now in effect do not have to be amended.
- It requires a written contract for engagements of $800 or more: Many businesses are already drawing up terms and obligations in a services agreement and statement of work, so compliance with the Act on this part isn’t an issue. As to the amount, to be more specific, you’ll need a written contract for work valued at $800 or more, either on that project/services alone or as a series of related projects/services in the aggregate over the preceding 120 days. The contract needs to contain details such as contact information, prices, and scope and value of services. The key piece to recognize is that your contract has to state (1) the rate and method of compensation and (2) the date that the business must pay the IC or the mechanism by which the payment date will be determined. In most cases, payment dates may already be in your current contracts tied to deliverables, millstones, etc., which may suffice as a payment mechanism under the law. If you don’t have dates or mechanisms, then you have to pay the IC within 30 days of the work’s completion. Because “completion” isn’t defined under the Act, best practices here may be to tie completion to company’s acceptance of the services or deliverable.
- Fines and Penalties: Aggrieved ICs can bring complaints against hiring parties and businesses under the Act. Damages run the gamut from $250 for not having a written contract, to double damages of the value of the services for non-timely payment or non-payment of an IC, to up to $25,000 for multiple or persistent violations, i.e., hiring parties that have been found to have engaged in a pattern or practice of violations under the Act. While much has been written about the double damages fine (as well it should), don’t overlook the multiple violations penalty. Although it sounds as if, and it may prove to be, this penalty would be levied only against hiring parties that repeat the same violations over and over, it could conceivably apply to a business that keeps using a non-compliant template agreement. For example, say a company sends outs 10 template contracts on the same day for unrelated services. If the template, for instance, fails to specify a payment date or methodology for payment per the new law, have they engaged in a pattern or practice of violations? Rather than wait for the answer, the smart move is to update templates to be used in NYC now.
While much has been written about the dire consequences the Freelance Isn’t Free Act might cause in New York City, businesses should be careful, rather than nervous, about the Act. In other words, we don’t know what we don’t know. Frankly, we won’t know what we don’t know until the new law is in use and tested. Until then, prepare now and follow the words of Douglas Adams’ “The Hitchhiker’s Guide to the Galaxy”: Don’t Panic.
Companies that engagement independent workers are always best-advised to work with an independent contractor compliance and engagement expert, like TalentWave, to make sure they are safely operating within the myriad federal and state guidelines surrounding proper worker classification. This new legislation in New York is yet another example of the complexity that can sink unsuspecting companies who want to engage non-employee workers.