Ahhhhh, Freelancer Surprise!

Your working away and look up at the clock. It's lunch time! But you didn't bring any lunch (again), and you don't have a lot of time to run out and get any. Unnnghhh! Soooooo hungry.

Now, any freelancer worth his or her salt knows that a FREE lunch may only be a few steps away. Yes brothers and sisters, I said free. Of course I'm talking about the cold left-overs from meetings which eventually make their way to the kitchen to be picked over by anyone with an appetite. It doesn't happen every day, but when these left-overs show up , it can really save a famished freelancer. All you need to do is make it to the kitchen before the rest of the agency does. If you do, then you'll be able to treat yourself to the "Freelancer Surprise".

I call these left-overs the "Freelancer Surprise" because it's always a surprise what will be left in the kitchen for you to scavenge. Actually, "surprise" might be a bit of an overstatement. 90% of the time these left-overs come in the form of pizza, and not very good pizza either. For whatever reason it seems that agencies have an unfathomable penchant for ordering the shittiest pizza around even when good pizza is readily available. While free, these odious old slices will inevitably leave you with severe acid reflux and a spastic colon.

Sometimes you'll get lucky and find sandwiches. Not the good sandwiches though. Those were eaten over 2 hours ago. The only sandwiches left now are egg salad and prune on rye, or tofu and Tabasco on pumpernickel. Just don't think about how many fingers have poked and prodded at them and you'll be fine. Then there is the salad. Someone always orders it, but no one ever eats it. There always seems to be plenty of salad. And every once in a while... cookies (gasp!). Jackpot my friends!

Who says there is no such thing as a free lunch?

When The Phone Doesn't Ring

In my first post I had originally crammed several topics into one long-winded diatribe. While the topics are all related, it will be a lot easier to read and discuss them if they are given their own space.

Obviously, the past year has been a tough one for many creative and production freelancers in the Promotional Marketing industry. With my recent down time I've been giving a lot of thought to our situation. I think that many of us consider the economic nose dive that this country has been in to be our biggest concern. It seems that quite a few of us are even considering drastic measures that we wouldn't normally consider. One of which is lowering our rates.

Brothers and sisters, I don't believe that lowering your rates should even be an option. The problem isn't our rates, it's the fact that entire freelancer budgets are being liquidated and/or shifted to other areas within an agency. We could drop our rate to $10 an hour and our phones still wouldn't ring.

Let's say we do drop our rates and an agency does hires us at that discounted rate. What happens when the economy swings back (which it always does)? And how will we know exactly when to boost our rate back up? After the economy has picked up for 3 months? 6 months? A year? You know as well as I do that as soon as we hit the agencies with a rate increase, they'll try to hold us to the established lower rate. I don't know about you, but I HATE price negotiations. Actually, I'd rather give my grandfather a Brazilian bikini wax than have to haggle over my rate with a client.

Listen, once we start dropping our rates it could take years for the precedent to be broken. And that, my friends, will be a very bad thing.

"Allright Grampa, just lie still. This will only take a minute!"

The Death Of Freelance As We Know It

(Edited for the sake of brevity on 11/22/08 - Thank you Bill!)

Fellow freelancers, I'd like to share with you a concern that has already impacted the freelance community and how we do business. I'm referring to the current trend by large agencies and the IRS to reclassify all freelancers (independent contractors) as "temp" or statutory employees.

The trend to reclassify freelancers as temp employees began several years ago presumably to meet certain IRS guidelines. To date almost all of the large promotional marketing agencies in the area have adopted this policy, and now issue W-2s instead of 1099s. A few agencies side step this by requiring freelancers to work through a placement agency who also hire you as a temp employee and issue W-2s.

Smaller agencies have not adopted this policy yet, and still issue 1099s.

However, now that the large agencies are classifying freelancers as temp employees I have to wonder how long it will take for all of the smaller agencies to follow suit. Since the big agencies are protecting themselves from the IRS, I can't imagine that it will take long before smaller agencies start taking the same precautions.

As an employer, hiring a temp employee is a pretty sweet deal. Temp employees are paid a fixed hourly rate and their hours are limited. Other than paying half of Social Security (a mere pittance comparatively speaking) employers don't have to pay any benefits, or contribute anything towards a temp's retirement plan. Employers also don't have to worry about paying for any sick days, vacation days, personal days or holidays. Other little things like not having to provide adequate work space, a phone line, business cards or up-to-date computers provide even more savings for the employer.

For individuals classified as a temp employee the deal isn't so sweet. If an agency issues you a W-2 then you can not write off mileage while working at that agency. If you only work for agencies who issue W-2(s) then technically you can not write off ANY deductions for that year because by IRS definition you are an employee, not an independent contractor. You also can't contribute any income earned via a W-2 into a SEPP IRA. When you receive a W-2, you are taxed on 100% of your income. When you receive a 1099 you are only taxed on the remainder of income that hasn't been contributed into a SEPP IRA (tax shelter), and deducted as a business expense.

The difference between a 1099 and W-2 could represent well over $20,000 in taxable income annually! And this, in turn, could represent thousands of dollars in lost revenue. While it is true that companies who issue W-2s pay for half of your Social Security, that "benefit" doesn't even come close to offsetting the loss you take when you can't contribute to a SEPP IRA, or take advantage of business expenses. Don't forget that your health benefits are 100% tax deductible too.

Obviously, the temp employee status is a lose-lose scenario for each and every one of us. And I think it's safe to say that the heyday of freelancing has come to an end. So, what's a freelancer, er... "temp employee" to do? Well, it doesn't seem like there are many options available.

1) Take a staff position - if you can find one.
2) Try to find as much work as possible at smaller agencies who still issue a 1099. Of course, the downside here is less work, smaller budgets and having to wait several months to get paid.
3) Continue working as a temp employee with all the restrictions that come with that classification.
4) Change occupations.

I do know that if the current trend to reclassify freelancers to temp employees continues with the smaller agencies then we'll all have one less option to consider.

You can find more info here:
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
http://en.wikipedia.org/wiki/Independent_contractor
http://en.wikipedia.org/wiki/Permatemp
http://www.contingentlaw.com/

If anyone has any thoughts, solutions or ideas regarding this situation I'd sure like to hear them.

Thanks,
Slim