Where independent contractors are concerned, know the rules
Freelancers and firm culture
No architect would say that avoiding hassles from the IRS over who’s an employee and who’s not will make them sharper at their craft. But whether your firm decides its priority is to train and retain or to run lean and mean says a lot about a firm’s culture internally, as well as what strengths it may offer its clients. Many architects say that leaving employment terms loose can lead to excessively casual attitudes about the quality of the work, since freelancers may not have the same level of commitment that employees do.
Tim Love, AIA, principal at Utile Design in Boston, says a payment scheme often influences how workers manage their time. He says bringing on workers without benefits can make a studio seem more like an atelier than a dynamic business. Independent contractors who work for long periods of time without getting social security or workers’ comp, he says, can start to feel like students. The message from the “employer” to the worker can amount to: “You [should] pay me to work here because it’s like you’re in school.” Love treats this as a “shady practice” that used to arise fairly often at “boutique firms.” And he says he avoids it as much to preserve a “9 a.m. to 6 p.m. culture,” in which everyone feels impetus to work efficiently, as to stay out of trouble with the tax collector.
So if a broad definition of “employee” serves your bookkeeping and your bottom line, how can a firm go about staffing up for sudden big jobs? The answer depends on the firm’s size and resources. The 20-person Utile staff includes six teachers, so Love taps students who understand the link between their studio work and the experience they gain in the job. While small firms like this can use students to support a team, large ones can treat ambitious projects as chances to deepen their overall strength. Again, firm culture drives the decision as much as bookkeeping does.
Seattle-based NBBJ uses labor-intensive new jobs as occasions for finding new hires who can enrich the firm over the long haul. NBBJ architect Kerry Hegedus says the chance to design Safeco Field for the Seattle Mariners prompted the firm to use a smaller firm in-house for a limited time—but also prompted a wave of new hires who stuck around and adopted different roles over time. “We look for people with some experience,” he says. “There’s more upside in hiring someone than in having someone come in for a few months.”
At the other end of the scale, sole practitioners turn down work rather than endure the hassle of accounting for—and managing—extra staff. Berkeley’s Scott McGlashan, who started McGlashan Architecture in 2004, says he limits extra help to “a few hours here and there,” mostly for design and drafting work. Staying solo hardly eliminates all tax headaches, but it allows a young firm to focus on building a style and reputation more deliberately. He says he’s finishing up a $3 million house and would have to take on staff to manage two projects of that size. Again, what looks superficially like an accounting question bears on how an architect manages client contact and portfolio.
Of course, today’s flexible workforce allows some architects to grow their practice while treating their full-time staff as free agents. One head of a six-person firm even argues that this treatment stokes creativity and output, but steers clear of long-term commitments. “People act as employees in every respect except for on the books,” he says. “In every respect it’s like working at SOM except that come payday, they invoice me, I cut them a check for the full amount, and they pay their own taxes.” Tellingly, this person only spoke on the condition of anonymity.
This practitioner argues that freeing himself from accounting headaches enhances office productivity by treating workers with respect. “It’s not easy for a young firm to heap on benefits. I pay more than a lot of small firms, and I’d rather give [workers] the money and have them figure out how to spend their money.” Moreover, he says, the arrangement lets his staff claim tax deductions on equipment, meals, transportation, and home-office equipment they use. The IRS has examined the practice, he says, adding that his “immaculate records” documented all his office’s work and sent the examiner away after 2 hours.
In crowded markets, where there is almost always lots of work, people may work as independent contractors throughout their entire career. In New York City, an advocacy group, Freelancers Union, offers health insurance at discounted rates to independent designers. And even in cities without insurance pools, there may be enough work available for ambitious designers to cover their own taxes and insurance while they build a portfolio. In this situation, advises Pelli, the worker should clarify mutual goals and approaches at the outset. That’s something architects should know how to do with clients, of course. But it’s not something they can do with the IRS.
Always consult a lawyer or accountant regarding employment and tax questions. Readers may download the Internal Revenue Service’s information on independent contractors below.
Independent Contractors vs. Employees [PDF]
Independent Contractors Definitions [PDF]