Hire Freelancers Freelance Platforms and Legal Compliance

Question 1

What is the main legal risk to US businesses that misclassify a freelancer as an employee (or vice versa)?

Accepted Answer

IRS penalties, back taxes, and potential liability for unpaid benefits

Answer

Misclassification can trigger IRS audits, require payment of back payroll taxes, and expose businesses to lawsuits for unpaid employee benefits.

Question 2

Which IRS test is most commonly used to determine if a worker should be classified as an employee versus an independent contractor?

Accepted Answer

The common law control test (behavioral, financial, and type-of-relationship factors)

Answer

The IRS uses a multi-factor control test examining whether the business controls how, when, and with what tools the work is done.

Question 3

What is the purpose of the Upwork Terms of Service clause that prohibits hiring freelancers off-platform within a set period?

Accepted Answer

To protect Upwork's business model and service fee revenue

Answer

Upwork's off-platform hiring restrictions protect its revenue by requiring clients to pay a buyout fee or continue using the platform for a period.

Question 4

Why must US businesses collect a completed W-9 from every US-based freelancer paid more than $600 annually?

Accepted Answer

To obtain their taxpayer identification number for accurate 1099-NEC reporting to the IRS

Answer

The W-9 provides the TIN required by the IRS to correctly attribute freelance income in mandatory tax filings.

Question 5

What does California's AB5 law primarily regulate in the context of freelance work?

Accepted Answer

The criteria for classifying workers as independent contractors versus employees in California

Answer

AB5 established the ABC test, making it harder to classify workers as independent contractors in California, requiring specific criteria to be met.

Hire Freelancers Practice Test