Employers and Freelancers: "Who Do You Trust?"
This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.
After two weeks researching and writing a whitepaper, I was eager to get paid and use the money to buy a faster computer to support my new freelance writing career. However, the 15-day payment period came and went, and I got the run-around when I called to see if there was a problem.
The company that hired me was located nearby, coincidentally, so a couple of days later on a Friday, I drove over to pick up my check.
The story I was told when I arrived wasn't very encouraging. It seems the company didn't have the cash to pay expenses just then, but I would get my money.
"We've experienced a trough of demand for our products. That, coupled with our recent raw material purchases, has put us in a negative cash flow position. But with your continued hard work supporting our sales efforts, we'll be able to properly compensate you at the end of the next pay period."
I wasn't very happy, but after finishing an unrelated project, I started to work on a brochure they'd asked me to write. Digging through background material they provided, I realized I could be wasting my time.
So on Monday, I drove back over to see if I could, at least, get partial payment and to tell them I wasn't going to keep working until I was paid.
When I arrived the parking lot was empty, the doors were locked, and there was a sign taped to a window with a phone number. A recorded message directed anyone who wanted more information to call another number — an attorney's office.
Don't hold your breath, but you'll get paid eventually was the short version of the well-rehearsed story. I never saw the money they owed me.
The Plot Sickens
In that case, bad judgment was the issue, but workers — especially freelancers — are increasingly finding that employers are using dishonest tactics to save money. With a third of the workforce now non-traditional "contract" workers, and an estimated 50 percent of new jobs expected to be independent workers, that's a problem.
A 2007 study by Freelancers Union showed that 77 percent of respondents had trouble getting paid. According to their latest study, during the last twelve months 83 percent of freelancers reported they were paid late, 33 percent said they were never paid, and 28 percent were paid less than they were supposed to be.
As a traditional employee, you can file a wage claim with the Department of Labor, but they can't help you if the company has gone out of business because they gave up or deceptively closed their doors to avoid creditors (often to reopen with another name).
A recent Rutgers University study found that almost a million independent workers in New York State alone were bilked out of $4.7 billion in lost wages, and money wasn't the only thing they lost. Freelancers Union found that in 2009, 3,000 freelancers, a tiny fraction of the total U.S. freelance workforce, spent $3 million and 18,000 non-revenue hours trying to collect what they were owed.
The same Rutgers study showed that those most likely to not be paid were office and administrative support folks — losing an average of $1,200 each. Architects/engineers and health care technical workers came in second and third mostly likely to be left holding the bag, for about $3,200 and $4,600 respectively. Teachers and librarians were ripped off for an average of about $10,000, but the folks who were stiffed for the biggest amounts, by far, were business operations specialists. The average hit they took was $25,000.
So if you're a freelancer or contract worker, how do you make sure you're paid?
Ian Ippolito, founder and CEO of vWorker.com, one of the top freelance job boards, understands the problem and has the answer.
"Traditional freelancers often find themselves in a delicate bind when it comes to finances. On one hand, if they demand too much up front, they'll scare the client away. But if they put off the majority of payment until the end of the project, the client already has the work and has little incentive to pay them. That's why vWorker exists: we guarantee virtual workers payment as long as they complete the job. We can do this because we require the employer to prove they can pay by escrowing the funds before any work begins. Then if they balk at the end and refuse to release it, we step in and award it to the worker ourselves. Both parties have agreed this is legally binding so that also eliminates expensive lawsuits or the hassle of hiring a collection agency."
Another freelance job board, Upwork, takes a very direct approach to ensuring hourly contractors are paid. Employers pay Upwork who in turn pays the contractors. Upwork records work from logon to logout, including mouse movements, keystrokes, screenshots, and even webcam images. If you logged the time, you get paid.
Guru has a SafePay service that assures freelancers that their employers will pay by requiring escrowed payment for money due at each project milestone. Guru doesn't guarantee payment, but less than 3 percent of projects require mediation and less than half of 1 percent go to arbitration.
Upwork also has an escrow program for fixed-price projects. Project milestones are established and accepted by provider and client in advance. If there's a problem, Upwork steps in to help resolve it.
The Fine Print
The underlying problem for freelancers is that they aren't included in all the worker protections that have been around since the New Deal was passed in the '30s. State and federal labor laws need to be adjusted to reflect the changing workplace and make it possible for freelancers to use the wage and hour claims system. State labor commissions need the authority to investigate employers that don't pay contractors, not just companies that don't pay employees.
Finally, freelancers need to have the protection — the same as that afforded to traditional workers — that comes from owner and shareholder liability if they aren't paid.
Employers take note: Freelancers aren't powerless. Contractors suing for employee status and associated benefits have won a number of high-profile cases. Further, the IRS has hired 100 new agents specifically to look for such violators.
Both freelancers and employers have a lot at stake when they play "Who Do You Trust?"
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