CTRL-D was wondering if the necessity of 10,000 hours to become an expert in your career, whether you're a freelancer or you're hired, is myth or truth. It is said that being a freelancer equals with freedom and being employed it’s all about routine. Is this a fact or urban legend? The reality is probably somewhere in between, so CTRL decided that this requires an analysis and what was the best solution for it, if not a dedicated conference: Career in the Ctrl-D - Employee vs. Freelancer.
Life and career are a number of choices and options, that decide the purposes and the results, and from all the possibilities I’ve chosen the gray ... in the broad sense accounting, which is why they invited me to speak in the panel dedicated to tax implications in the freelancer or employed activities.
In the employed vs freelancer area, the accountant is a necessity for some, a pact with the evil for others or a guru of numbers and fees, quoting so beautiful with the articles of the law, but the truth is that even if we like to call our profession challenging, most of the times we are dealing with poorly regulated cases or we study contradictory pieces of legislation, so the expression that would suit us best is "not kill the messenger" because we are the bearers of tax news, unstable and too many if you would ask our clients.
As J. Olsen the Vice President of freelancing platform Elance says, the great advantage of working on your own is that you can work from anywhere, even from a pool. Moreover, freelancers do not have to live in the city where the company is headquartered, as in the case of a permanent employee, just what many do not consider when providing services to such a platform, is the message legally transmitted, namely that every freelancer is responsible for the collection, payment and declaration of taxes in the state where they resides.
What’s the point showed here? One aspect that many choose to ignore, namely the freelancers with incomes abroad normally would have to present a statement to Administration, followed by some transferred taxes, steps that most of the professionals choose not to do.
I was thinking the other day that if I had a penny for every discussion where was stipulated one of the ideas bellow:
- And if I am not declaring, so what, you are only thinking about consequents and you are not seeing the creative solutions
- I know my bank account / my account card / pay pal / but the Administration doesn’t
- Are you working for me or for the Administration, why are you flagging me inn existing risks?
... I would have been almost a millionaire and could be easily named the entrepreneur of the year, not the accountant positioned in the gray area, because dear freelancers unfortunately I have to give you some news: the Administration is quite smart when they want to and slowly but surely they are waking up, because if they can put a tax on something, like a pole or the breathing air, they will surely do, the fact that is not happening right now is only because of the stupidity of some who focuses on bureaucracy and not on gathering money to the stated budget.
And because the Romanians were born gifted and talented, do not forget that this talent should be paid and here we find the possibility of copyright contracts. In 2016, all the individuals paid for this type of contracts will due social security amounting 10.5%, even if they are employed, but the good news is that the flat-rate is increased from 20% to 40%.
The withholding tax considered final is changing also. Since 2016, the basis for calculating income tax is determined by deducting from gross income the 40% flat rate charges and social contributions.
Basically it will be more efficient for individuals to stipulate into the copyright contract that the income tax is final. In this way, it is actually withhold a tax of 9.60% (60% x 16%) compared to 10% as tax withheld if this option is not in the contract and the withhold is not final tax. Plus that individual will escape the completion of the declaration 200. But let’s not get excited premature, because in 2017 the 5.5% health insurance will become mandatory, so here we are at the stage where, at least mathematically, the due taxes for the authorized individuals and copyright contracts are equal.
The difference is made by the increased flat-rate, not the amount of contributions, the rate where you can not necessarily deduct thought expenses in case of authorization, but don’t forget to beware of types of individuals who can be classified for copyright contracts and covered activities: creating and publishing literary works, including software; scientific works, photographic, musical, graphic or plastic art or architectural works.
An important flag in both cases, copyright and individual professions, the tax authorities may reclassify activities in relation with copyright/authorized individual as activities related to an employee, if there is a suspicion that the work related to copyright disguises employed, in order to pay less taxes.
Romanian Fiscal Code stipulates that an activity is independent if at least four of the seven conditions, mentioned in the Code, are met.
The seven criteria are:
- the freedom to choose how to work;
- providing services to more customers;
- risks relating the performed work shall be in responsibility of the individual;
- individual uses their own equipment for the activity;
- use the knowledge held by the individual;
- the individual is part of an organization which coordinates the professional activity;
- the individual can hire others or collaborate with third parties to deliver the service
Debating all above the vs employed raised in the panel of discussion, but the lines were large, because of the important presence of freelancers and entrepreneurs at the conference. Is true that is not in the fiscal borders but, my answer at this question was quite simple…for the comfort and multiple advantages.
An employee will always have the 3 T – Team, Time, To do.
Team, meaning you can always rely on a group of people with whom to share the work, to socialize and live simple pleasures and inconvenience of a job. It's easy to underestimate the value of a team until you start to work alone. As a freelancer, you have to put extra effort to meet people and have daily interactions.
Time, as in work program, although it happens to stay over. As a freelancer, you can get to work (much) more. Sometimes for less money, sometimes for more, but it's easy to fail into the trap of self-exploitation – considering that it's for you, for your future, doing what you like.
To do, having constant projects, you don’t have to worry how many clients you will have this month so you have a stable level of income. More than that you have colleagues that share with you the responsibility of the work done, so it’s not one men show all along.
Because it was an interactive and based on dialogue conference the conclusion of the day was “well it depends”. Why? Because the professional jungle is not a place of black and white, left or right, but is full of gray shades (to be clear, not the movie) because the theory is one and applying it in day by day life, well that’s a challenge!
We all know that in reality there are a significant number of companies, where the freelancer is just a substitute term for the actual activity of an employee. Wrong or right? We did not gather here to analyze or judge that, our role was to light up a little bit more the complicated and seemingly incomprehensible tax and fiscal implications and together with CTRL-D we decided that next year we will for sure allocate much more time for this aspects because of the large number of questions and discussions continued also in the break and because everybody needs some financial clases!