What is the “Freelance Isn’t Free Act”?
In May of 2017, the city of New York enacted the “Freelance Isn’t Free Act” (FIFA) to protect freelance worker rights. Passed unanimously in part of efforts of the Freelancer’s Union, the law defines what freelance work is and gives freelance workers some protections when it comes to payment.
Specifically, the law is designed to prevent clients from taking advantage of freelancers by not paying them, forcing entities to give freelancers contracts, and setting deadlines that clients have to pay by, even without a contract.
Now that we’ve introduced the law, let’s talk about the benefits of knowing your rights as a freelancer before moving on to the fine details of the law’s provisions.
The benefits of knowing your rights as a solo professional
Knowing your rights as a solo professional is one of the best things you can do. Here are some of the considerable benefits of knowing your rights as a freelancer:
Getting treated fairly
While not every client is an evil mustachioed villain looking to short-change you, they are out there. Knowing what rights and protections you have the means to protect yourself and your interests. You’ll be able to stand for yourself. Your client likely is doing everything they can to protect themselves, so you should do the same.
Protecting your rights
As a freelancer, you might often stumble upon a client who tries their best to micromanage you. They might even try using legalese to convince you that they can do just that. So, learning the laws gives you a leg up in these conversations by informing you exactly of the freedoms that you as a freelancer can enjoy. Don’t let someone tell you otherwise.
Often as a freelancer or solopreneur, you’ll be operating under different tax codes than your counterparts. The onus is on you to know these rules and regulations regarding how much you have to pay and what deductibles you might have.
Managing your taxes is an important part of managing your finances, and so knowing just how these tax laws affect you is a crucial bit of information to have. There are plenty more reasons unlisted, but hopefully, you can see why learning your freelancer rights is an essential part of being a solo professional.
Learning about the Freelance Isn’t Free Law
FIFA is an essential law for any freelancer or solopreneur working out of NYC. It guarantees your freelancer rights by providing protection and has provisions that help you get paid. Learning its ins and outs will benefit you greatly, so let’s look at some of the topics it covers:
Freelancer rights and protections
According to the law, freelancers are independent contractors hired to provide compensation services. It then provides certain protections that you are entitled to, such as a contract, but we will cover these in more detail later. The law also prevents clients from retaliating against you for invoking your rights as a freelancer.
Securing timely and full payments
This is one of the most important provisions of the law. It guarantees that clients pay you whatever fee was agreed upon for your services. It even goes a step further and provides a time frame of 30 days that clients have to pay by, even if you don’t have a contract or payment terms in the contract. It’s a big step in guaranteeing that you get paid what you are due for the job you have done.
The importance of written contracts
One of the bill’s provisions is that it guarantees that any transaction worth more than $800 has to be accompanied by a written contract. The contract will detail the cost, service provided, and other bits of information like the payment terms. Contracts are necessary because it is the document that defines your relationship with your client. A good contract satisfies your client’s desires while also balancing your interests.
Remember that it is easy to find contract samples online. For instance, Ruul offers a simple and easy-to-use legal feature that helps solo talents manage their contractual needs. You can choose the best fit among customizable contract templates and edit it to suit your working terms and conditions. The contracts you create with Ruul are legally binding for your clients, easy to prepare, and accessible.
What is Freelance Isn’t Free Act?
Here we will go into some of the specifics of the deal and explain some of the terms that it uses. The goal here is to break the terminology the act contains down so that you can understand and see how it can relate to you and how you can protect your rights.
30-day payment terms
A 30-day term means that the client has 30 days to pay you after you send them an invoice/the project is completed. FIFA guarantees that clients must pay on the agreed date of the contract or within 30 days of completing the project if no date is given. This is important because it provides a means for timely payments.
This provision states that all transactions worth $800 or more must have a written contract detailing the arrangement. There can’t be an agreement without a contract. It gives independent contractors/freelancers a necessary legal right and protection. If clients refuse to do so, they can face fines.
Payment agreement protections
Clients must pay the agreed-upon price to the freelancer. They cannot pressure or threaten freelancers into taking less than what was agreed to. This includes negotiating a more timely payment at a discounted rate.
The law’s anti-retaliation provision provides freelancers protections against those who would seek to penalize, threaten, blacklist, or try to prevent any independent contractors/freelancers from exercising their rights.
Freelancers are also protected from unwarranted legal actions as a part of the bill. If there have been any violations, freelancers can file a complaint with the OLPS (Office of Labor Party Standards) to seek redress.
If your freelance worker’s rights have been violated in this instance, you won’t be left to defend yourself. A city agency will act on your behalf by investigating any wrongful actions, attempting to collect on your behalf, and representing you in court.
Penalties include double damages
If there’s litigation, freelancers can collect double damages and attorney fees in court. Meaning that you can be awarded twice the amount of the original cause of the dispute, so twice the payment you’re due. On top of this, you can be awarded costs for attorney fees as well.
Penalties with no contract or a non-compliant contract
Freelancers can file a complaint with the OLPS (Office of Labor Policy and Standards) if they do not receive a contract or if the contract is not compliant. Freelancers have two years to file the complaint. Clients who don’t follow these procedures can face legal action and fines.
Who does the law cover?
To be eligible for the protections offered by FIFA, you need to fit a few qualifications. These are:
Earning 1099 income
1099 is used to report non-employment-related income. This can include earning from stocks and, more importantly for our purposes, income earned as an independent contractor. So you need to be an independent contractor using a 1099 tax form to report your income.
Being owed over $800 of work in 4 months
If you are an independent contractor with a work agreement with a client worth $800 or more over 120 days, you qualify for the protections offered by FIFA.
Being a sole proprietor
According to the US Small Business Association, “Sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner.” However, there are more distinctions to be made.
To qualify for FIFA, sole proprietors should be;
- Not incorporated, meaning that the business does not have a separate legal entity from its owner. So the owner bears entire liability for the actions their businesses do. So, they can be sued for their business dealings, not just the business.
- Incorporated as either an independent LLC, S-Corp, or C-Corp, the business has to pay taxes as any one of these corporations. You must choose to incorporate your business as one of those three tax corporations.
- Be an incorporated entity but not have any employees.
Who is not covered by the Freelance Isn’t Free Act?
These are the groups who are disqualified from the protections offered by FIFA.
W-2 income earnings
The W-2 is also known as the “Wage and Tax Statement,” making it the report of income someone earned as an employee. In other words, a W-2 employee has their employer deduct payments from their income and provides this info to the government. So, they are someone employed by someone else.
Businesses with employees
Businesses with employees are not eligible to receive the benefits of FIFA.
A partnership is another way that you can choose to incorporate your business. However, if you decide to incorporate your business as a partnership, it will not be eligible for the protections offered by FIFA.
Individuals who work in sales or as lawyers are not eligible for the protections offered by FIFA.
City workers or anyone else that works for local government are not qualified to be protected by FIFA.
What to do if nonpayment or late payment occurs?
Should you find yourself in a situation where a client does not pay, you should open up some form of communication to see if some arrangements can be made. If the client does not make any efforts to pay, then be sure to begin enforcing your late fees and file a complaint using this complaint form. Fill this out and send it to the OLPS so that you can find a way to be compensated for your work.
Freelancers have up to SIX years to file a claim
Under FIFA, you have up to 6 years to file a claim for nonpayment or an attempt at retaliation. However, you have only two years to file a complaint if the client has refused to draw up a contract with you. In either case, the city will assist you in this matter.
When to ask for late payment as a freelancer?
FIFA has changed how freelancers in NYC can collect late payment fees. If the client has not paid within the time stipulated by the contract or the 30-day guarantee you have promised by FIFA, then you should take action. You should try and communicate with your client to see if you can understand. However, if this is not the case, you should take more options.
Once this is the case, you, as a freelancer, should enforce your late fees. Late fees can be incorporated into the contract ahead of time so that the client can be informed of the consequences of not paying on time. Also, FIFA protects freelancers in that it guarantees late fee payments for those clients that don’t abide by its provisions.
What is the standard interest to charge for late payment of freelance services?
The Freelancer’s Union suggests that the normal late payment interest that freelancers enforce is 1.5%. It is usually enough to convince most clients that you mean business when it comes to being paid on time.
When sending invoices with late fees, make sure you communicate this clearly with your client. If you don’t use this percentage, make sure that it is reasonable enough to hold up in court to have a concrete argument.
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