While I doubt any scientific survey has been conducted, I think a poll of our industry’s union and non-union workers would show the vast majority label themselves as “freelancers.” And why not? It certainly feels like we’re freelancers. We pay for our own tools. Unless we’re part of a union, we receive no benefits from our various employers, and we have various employers. There is seldom a guarantee of continual work. And the only person paying for our continuing education is us. Clearly we are freelancers! Right?

This past January the company I work for started a continuing education effort for NYC’s freelance community called Tinc Tuesdays - a series of classes for freelancers by freelancers. The first topic was this question of whether or not any of us are actually freelancers, and the answer was a bit surprising. In the eyes of New York State’s Department of Labor and the IRS, none of us are. So this creates some confusion: we are neither employees or independent contractors, and at the same time, both.

The business of paying people in these United States is no easy task. Most employers hire another company to handle it (ADP or Paychex are common), and for good reason. Between the the various taxes, insurances, and rules there’s a lot that can be messed up. The state and federal government take a dim view of this, and the potential fines for miscalculations, even innocently, are steep. Ironically, despite all this complexity there are only two legal ways to pay a person: W2 and 1099.

The IRS and Department of Labor classifies W2 workers as “employees.” They can be further subdivided as part-time employees or leased employees, but we’re splitting hairs. Employees in New York State have certain perks, like unemployment and disability insurance, workman’s compensation, and the employer matched Social Security payment. All these extras cost the employer between 10% to 15% more than the stated hourly wage, though that does not include workman’s compensation or disability insurance policies, which in some states (like New York State) are required. Full-time employees with a benefits package cost even more by an order of magnitude, mainly because of health insurance. However, we’ll save that discussion for another day.

Conversely, a 1099 worker does not have any perks whatsoever. The “independent contractor,” which is the government’s classification for these people, costs what he or she costs and no more. They cannot file for unemployment, and if injured on a job site their employer has no obligation towards any immediate medical expenses or long term care. Legally speaking, a freelancer is defined as being an independent contractor. If you are paid on a W2, you are not a freelancer in the eyes of the government.

Paid as employees, our industry’s labor isn’t getting the deductions they deserve. Employees can only deduct work related expenses on a Schedule A, while independent contractors can use a Schedule C - which is preferable in lowering one’s taxable income. So our freelancers spend money on business expenses, but only get a percentage of the deductions they should.

Furthermore, people paid as employees have a more difficult time joining freelancer organizations, like The Freelancer’s Union, because they aren’t paid primarily on a 1099. This makes access to affordable healthcare, which is not provided by the various employers, difficult or prohibitively expensive.

Those of us primarily paid on fees (designers, PMs, etc.) have a tough time in either scenario. If paid as an employee (W2), the bulk of the fee is lost to taxes. If paid as a independent contractor (1099), we have no access to the safety nets, like unemployment, while everybody else does. Why should a wage electrician have access to unemployment or workman’s comp. but not a lighting designer?

Many fee-type people feel economically forced to start companies to gain a modicum of control over their taxes and liability; also paying a company is a whole lot easier in every conceivable way from the employer’s perspective. Unfortunately, this is no free ride. Start-up costs, which are substantial in New York City, are required to form even a simple Sole Proprietor LLC. Ongoing expenses, like liability insurance, cost money whether there’s work or not. And in an ironic twist of the knife, officers of a company are not allowed to claim unemployment. Unless you’re making pretty good money on fees, it does not make fiscal sense to form your own company. In down years, these expenses can lead to bankruptcy.

Businesses have a hard time knowing which classification to assign to various workers. The guidelines distinguishing a 1099 versus W2 worker are intentionally vague, but that opens the door to abuse. Furthermore, positional disparities complicate the issue. “The same job performed at different organizations can lead to classifying that same worker differently,” is a mind-boggling quote from an actual IRS agent, when asked for a ruling on what we call a freelancer. So is a deck electrician for a show an independent contractor or employee? Usually an employee. How about an A1 for a band on tour, or anyone on tour? Probably an employee, though not always with a benefits package. A scenic painter? Programmer? Depends on the gig and responsibilities. Where is an ESTA-like organization to help us make sense of this?

Despite all this, I think we do a lot right. The bulk of our labor is covered in case of an accident or hardship. Union membership or other organizations are helping to bring healthcare to the “freelancer” lifestyle, which is making it a sustainable career path. However, this nebulous existence between employee and independent contractor should be cleaned up. I sometimes fantasize about all of us sitting down with the Department of Labor and saying, “Look, nobody’s leaving this room till we figure this out.” This new class of worker, our class of worker, is what the economy wants and needs: they’re nimble, flexible, responsive to changing conditions, and incredibly mobile. It benefits them, businesses, and the economy to give our freelancers the tax credits they deserve, the protections every American worker should have, and the tools to make this a sustainable lifestyle.

Lance Darcy is the head designer at Tinc Design & Productions, based in New York City.