Permalancing: Full Time Freelancing with a Client

Thursday Bram |
Business & Finance
| July 7th 2010

A growing trend for some companies is to hire freelancers for a full 40 hours (or occasionally more) per week. These freelancers have to show up to the office on time, handle whatever work is on the agenda, work on an indefinite basis and generally act like employees.

But they don’t get the actual benefits that go with being employed — not only don’t they get access to benefits, but they’re still responsible for paying taxes on their own. These freelancers who act like employees are known as ‘permalancers.’ While there are plenty of people willing to take on permalancing jobs, it’s rare that these jobs are good opportunities.

The Problem With Permalancing

Employers like permalancers because they keep human resources costs down and permalancers can be let go at the drop of the hat if a business needs to change direction. Permalancers get neither the freedoms of freelancing nor the benefits of full-time employment.

In some cases, a company may choose to provide certain benefits to permalancers or offer opportunities for a permalancer to become an employee after a certain period of time. But that sort of decision is no guarantee: in December, 2007, Viacom announced that permalancers and contract employees at MTV would lose the benefits and paid vacation days that the company had previously extended to them. The announcement resulted in a strike by the permalancers in the hot seat, which lead to a rollback of the changes on Viacom’s part for current permalancers at MTV. New permalancers still face problems, as well as any permalancer or contract employee at other companies owned by Viacom.

The Viacom situation stands out because permalancers were able to get some concessions: there was a big enough group, who happened to be pretty media savvy about getting coverage. But that’s not the typical results a permalancer may face. If you work for a smaller employer, it’s generally easiest for the employer to simply fire anyone who isn’t in line with the company’s policies — after all, permalancers rarely have recourse.

The IRS Issue

Technically, in most cases, asking individuals to permalance, rather than employing them, violates the IRS’ policies on who can be considered a contractor and who cannot. The IRS requires that contractors (including freelancers) must have the freedom to do work when they see fit, among other characteristics. When a freelancer works only for one client, it is not unheard of for the IRS to reclassify that freelancer as an employee and force the employer in question to pay back taxes and penalties.

But the number of companies employing these strategies are numerous and many of them are quite large. The IRS simply does not have time to examine each situation and take appropriate action. It is possible for a permalancer to take the situation to the IRS, by reporting an employer, but the odds of that resulting in a full-time job or even more freelance work from the company in question are very low.

Where That Leaves Permalancers

If you’re in a permalancing position that feels equitable to you, that’s great. But if you’ve wound up in a permalancing situation and you aren’t comfortable with it, perhaps it’s time to consider changing the situation. That may mean looking for freelance work away from the company that is in fact (if not on paper) your employer. It may also mean having a talk with that company and seeing if you can’t come to a more equitable arrangement. Those may not be ideal steps to take, especially if your concerned about your personal cash flow, but they are the main options facing freelancers.

With few exceptions, permalancing is a poor option for freelancers: it takes away our freedom and can even cause us some trouble during tax season. The best solution, at the end of the day, is to simply try to avoid it.