If you’re an artist or creative professional whose business is quickly picking up steam (and congratulations, by the way!), it might be time to start considering an expansion of your staff. But how does one prepare for a bigger employee roster? In this installment, we’ll discuss employment law and insurance requirements for those expanding their art business.
Often times, new business owners don’t consider all of the various tasks associated with operating a successful enterprise. A growing business will need someone to identify and pursue new business opportunities, someone to handle billing and follow up on accounts that aren’t promptly paid, and someone to manage expenses and other accounts payable. For artist entrepreneurs who want to stay focused on making new art, handling the day-to-day business needs of an enterprise is often the last thing on their mind. In order to keep everything running smoothly, you might consider hiring more employees – whether to help with art-making, sales and marketing, or general business maintenance.
As an artist, you might consider hiring individuals who you can task with portions of your artistic process that you don’t enjoy or where your skill set may not be as strong as you’d like it to be. For example, a photographer might hire a digital editing wizard, or a sculptor might hire someone with vast experience in welding. You might also be inclined to hire someone to manage your social media accounts, which can assist you with additional marketing to meet new contacts and forge new partnerships. Or perhaps you just need someone to catalog and sort your inventory of artworks, pay bills, and invoice clients.
Whatever help you’re searching for, it’s important to clearly define the nature and scope of the work, not only so you and the person you hire know what’s expected, but because it also has legal implications. From a legal perspective, there are distinctions between someone who is legally an employee and someone who is an independent contractor.
What Type of Employee Do I Need?
So what’s the difference? Under federal law, an employee is someone who performs services for you that you control completely, in terms of how and when the work will be done. For example, if you hire someone to come in for a fixed number of hours every work, assign them specific tasks and require supervision and final approval of the work product, then your new hire would probably be considered an “employee” under U.S. law. So, a personal assistant, bookkeeper, or photo editor that keeps set hours would likely be considered an employee of your business. In that case, there is a host of payment, tax and insurance obligations that go along with your new hire, which we will discuss in detail below.
By contrast, an independent contractor is someone whose work product you control, but whose process – what will be done and how it will be done – is up to them. For example, if your new hire is assigned a specific project, but is left to complete that project on their own schedule and using their own tools or methods, then they would likely be considered an independent contractor. Often times, independent contractors are highly specialized workers, such as writers, software developers, technicians, or craftsmen. If you hire someone to develop your website, for example, that person would likely be considered an independent contractor and your obligations under the law are much less strict.
The distinction between employees and independent contractors is especially important as it relates to copyright. Copyright law protects creative expression by granting certain rights to authors of original works fixed in a tangible medium. Because artists are in the business of creating copyrighted works, it’s possible that someone working for an artist may work on pieces that are ultimately subject to copyright protection, and it’s important to be able to figure out who owns them – the artist or the hired gun.
Under copyright law’s “work for hire” doctrine, works created by an employee (within the scope of employment) are owned by the employer, but works created by independent contractors are owned by the contractor.
For employees, whether or not a work constitutes a work made for hire will be determined by whether or not the copyrightable work created by the employee falls within the scope of his or her employment duties. If it does, then the copyright is owned by the employer; if not, it may be owned by the employee.
Although independent contractors typically own the rights to their works, they can also create works made for hire if the parties specifically state at the outset that the work is being classified as a work made for hire, or the work falls within one of the following categories:
- a contribution to a collective work
- part of a motion picture or other audiovisual work
- a translation
- a supplementary work
- a compilation
- an instructional text
- a test
- material for a test
- an atlas
If an artist hires an independent contractor to prepare a work (or a portion of a work) that does not fall into these categories, then copyright law says the copyright is owned by the contractor and the artist who hired her must get an assignment in writing.
Tax Requirements for Artists
Now that you’ve determined whether to hire an employee or independent contractor, it’s important to understand the tax, insurance, and other benefits obligations that come along with expanding your business. Note that the majority of these requirements will vary from state-to-state, so consult your local laws in order to determine what action is required on your end, or consult with an attorney familiar with the business laws in your state.
As an employer, you will be required to file certain employment taxes on behalf of your employee, while also withholding a certain amount from each of their paychecks. Note that you will only be required to do so if you hire employees, and not independent contractors, since independent contractors are required to file self-employment taxes, and those are generally handled by the individual.
As an employer, you are responsible for depositing and reporting employment taxes. That means that you’ll be required to withhold taxes from your employee’s pay in order to satisfy federal tax requirements. That includes withholding federal income tax. To figure out how much to withhold, an employer should compare an employee’s salary to the withholding tables in the Employer’s Tax Guide. At the end of every year, you must file Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee.
You’ll also be responsible for withholding social security and Medicare taxes. Generally speaking, you’ll withhold a portion of your employee’s wages, and pay a matching amount yourself. Here, you would also take a look at the IRS’s withholding tables in order to determine how much will need to be deposited. In addition, employers need to withhold an additional Medicare amount – approximately 0.9% – once an employee’s salary reaches a certain threshold. Finally, employers will also be required to withhold federal unemployment tax, which they pay separately from federal income tax and social security/Medicare taxes. Employers are required to pay these taxes themselves – employees should not contribute any percentage of their salaries to this tax.
In addition to these taxes, employers are also responsible for withholding any state income taxes that may be required.
Artist Insurance Requirements
Under the Affordable Care Act, businesses with more than 50 employees are required to offer health insurance to their employees. Of course, if you’re an artist considering expanding your business, then you’re probably not there yet. So what are your requirements under the law?
Like your tax obligations, insurance requirements vary from state-to-state. In New York, for example, you won’t be required to provide health insurance, but you’ll get a tax credit if you choose to do so. Buying a health insurance plan from New York’s Small Business Marketplace could make your business eligible for a tax credit as high as 50%. It’s also a huge draw for nabbing potential employees since individual health plans can be costly to maintain.
Though health insurance isn’t a requirement for small businesses, employers are generally required to carry workers’ compensation insurance for the benefit of its employees. Workers’ compensation provides benefits to employees who are injured on the job. It protects both employees from being out-of-pocket for work injuries, while also protecting employers from potential lawsuits when accidents occur. Although every state requires some measure of workers’ compensation insurance, specific requirements vary by state. For example, in California employers are required to carry workers’ compensation insurance even if they have only one employee, whereas in other states it’s only required for companies with more than a certain number of employees. The National Federation of Independent Businesses has a helpful chart of workers’ compensation requirements on its website.
In the next installment, we’ll cover vacation and sick days, retirement plans, and hiring and termination policies.