Ouef, I have to respond to this. When "freelancers" are working onsite and under the direction of studios they are in fact employees, no matter what kind of contract or deal memo they signed. So what is actually illegal is avoiding paying employer-side payroll taxes, incl. unemployment insurance, etc. and misclassifying the workers.
Its not as black and white as that. This freelance thing has gotten way out of hand in the last decade, losing sight of exactly what a freelancer is. What a freelancer is, in the eyes of the IRS, is all this boils down to.
Rules are in place to ensure fair practices are met, but I just went through the verification process myself and can tell you that the IRS themselves will tell you that every business relationship needs to be judged independently for proper classification. I have no clue where all this talk about being on-site automatically classifying people as employees come from. I encourage people to stop reading sources that are trying to form unions etc and read the actual IRS documentation.
Freelancers should be classifying themselves as self-employed are supposed to pay their own medicare and social security taxes. Thats a higher tax rate than an employee, a 15% self-employment tax to be exact. If they are not filing their taxes as self-employed, the shady practices are on the individual, not the company. Why this is hairy is because far too many people are out there "freelancing" without doing their duties as a self-employed individual. 8% corporate tax (if incorporated), 22% income tax, and 15% self-employment tax.
Here is a fact: Uncle Sam does not know what a freelancer is. Its not in his vocabulary. There are a few larger shops for longer-term gigs that were blatantly abusing the fact that most freelancers don't do what they are supposed to and,.yes, effectively passing along those taxes to them. But a freelancer's rate is supposed to cover that type of stuff. Your fulltime and "freelance" (god, I hate that word) rates should be far different.
When the entire talent pool out there isn't doing their due diligence, what is a shop to do? I'll tell you exactly what - go through a 3rd party billing company, which isn't unique to this industry at all nor is it illegal. So there isn't confusion, I'm not referring to how certain shops used companies like Yurcor and the exact practices in those examples. Just because one group didn't play by the rules doesn't mean the entire industry is doing things wrong.
I have a nice little piece of paper from the IRS granting me, in my use-case, the ability to hire on independent contractors, as long as a few common sense things are met.
If a freelancer is incorporated, has a city business license, pays for their own workers compensation insurance and files their taxes as self-employed then all is more than well. Not even all of those items together is entirely necessary. You can also just have them sign something stating that they are independent contractors. If they don't do things right on their end to back up the Independent Contractor status they signed on with me for, its on them. If I feel they are blatantly not doing those things, then I need to hire them through a staffing agency, like creative circle, match, or 24/7.
If anyone is working on a long-term gig, say over two months, at one location then maybe some weird things are going on there. If in doubt, either as an "employee" or employer, file a S-88 with the IRS yourself and get the same wonderful little piece of paper tailored to your own situation. If anyone has been self-employed for a while and not claiming as such, they might be in trouble down the road.
S-88 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
If a company is hiring you on, as an individual, without getting due-diligance items from you, then maybe things are fishy. Again, every relationship is different. Just file the S-88 if you're in doubt.