IRS and the Freelance Dilemma

. . . is the title of a very interesting article posted on the AWN (Animation World Network) site. Click HERE for the article.
Most of you have had part time or full time positions with a company. Taxes, social security, 401Ks, workman's compensation and health care are responsibilities you seldom consider because their burden is handled by your employer. You'll notice on your pay stub that a percentage is taken out of your base pay (by the company) to cover various taxes and benefit payments. Therefore, you don't have to worry about paying those benefits.
But what if you are your own employer? As a freelancer, you dictate who you work for, your rate, and when you work. Sounds great! Right? Well, most of the time it's great. The headaches are enormous when April comes. Freelancers have to be meticulous at their budgeting. A large percentage of their income has to be set aside for taxes and benefits every year. A freelance artist cannot look at a job and think, "Wow! I'm getting paid $50 an hour!" After taxes, the artist must look at the reality of that hourly wage; $35.45. Due to the financial crisis, the federal government is cracking down on hiring practices. This effort is weighing heavy in the NY and LA area entertainment industries; where the workforce maintains a population of freelance artists.
Here is a basic scenario to illustrate the relationship between the employer and the freelance artist: Company A hires you (freelance artist) to work on project 1 for three months. Company A gets a contract for project 2 after project 1 is completed. Company A asks you to continue your work with the company until project 2 is finished. Then comes project 3. And so on, and so on. Technically, Company A should have hired you as a full time employee after project 1. Company A did not hire you as a full time employee so they do not have to pay for your benefits. The term "Permalance" has been created for artists who find themselves in this situation: contiuious employment without the benefits of a full time position.
This practice has been going on for years in both LA and NY entertainment markets. The situation can be looked at both sides as positive and negative.
Artist: up side - you can dictate your own rate, you can work wherever you choose for however long you want to work. down side - you never have as much money as you think you do, you never know where and when you next job will be coming from.
Company: up side - the company can claim it has a work force of 20 people when they market projects that took 50 - 100 people to complete, the company can advertise a variety of styles and talent per project, the company only has to pay taxes, facilities, and overhead on 20 people, not 100. down side - there is no guarantee the artist they advertised is available for the project they need, several other companies can advertise the work of the same artist which makes competition fierce for talent
- I know people involved in all aspects of this scenario. Some people are happy the government is finally taking interest in their situation. Some people are furious the government is dictating their affairs.
The AWN article, I posted above, feels like a long propaganda piece for the company MBO, in my opinion. However, that shouldn't take away from the ideas they are discussing and the mission statement of the firm. Please look for yourself and form your own opinion. When you do, let me know your thoughts. Cheers, Director Eve.