Regulations that the freelance economy desperately needs

By: Amar, 10/08/2015

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The freelance economy refers to freelancers, contractors, consultants, temporary workers or independent professionals. The terminology varies from market to market. For the purpose of this piece also, we have used these terms interchangeably.

In India and globally, freelancers grapple with problems of the lack of rules and regulations governing the freelance ecosystem. Even in mature markets, there is limited information online about rules and regulations for temporary workers or independent professionals. 

When it comes to India, freelancing is pretty much in its infancy. The National Accounts Statistics (NAS) uses the classification of `organised' and `unorganised' sectors in presenting national income data. Enterprises, which fall under the ambit of any government regulation, like the companies act are a part of the organised sector. All the unincorporated and unregulated enterprises are classified as unorganised.

Freelancing is outside the scope of these definitions since freelancers work with many different clients and depending on the client; they could fall under the organised or unorganised sector.

Having said that, globally, there are not many regulations, which forms the contours of the work done by independent contractors. There are unions, websites, intermediaries that stipulate their own laws but there is not much from a legal perspective. Keeping this in mind, we suggest some regulations, which could help the freelance ecosystem. Until the time our legal system catches up with this model of work, perhaps the community would do well to adopt these contours for itself. Below are the submissions:

  • The definition of a freelancer: It is important to define who is a freelancer. A freelancer could be defined as someone who works for a client on project/need basis and not an employee of the client. He works for a predetermined fee for his services, which is agreed upon by both parties. The Wikipedia defines a freelancer as a person who is self-employed and is not necessarily committed to a particular employer long-term. An independent contractor could be a person or corporation, which provides goods or services to another organisation. In the US, such a contract may be subject to the laws of agency, which the contractor performs work as an agent of the principal client.
  • Social security for freelancers: The government can look at separate benefits for freelance professionals. Since freelancers do not get the benefits of provident fund or insurance benefits from their clients, the industry can look at how the freelance pool in the economy could be covered by social security. In the US, the self-employed individuals pay self-employed tax, which refers to social security and Medicare taxes.
  • Minimum wage and working hours: The labour law only defines the minimum allowances for employees. There are no rules as far as contractual services are concerned and this should be looked at. The minimum wage could be defined on a time basis or type of work basis. This can be done in consultation with the members of the industry and representatives of the contractor economy. Currently, minimum wage does not apply to contractual services.
  • Incentives for freelancing: For clients, the cost of employing a freelancer is much lesser than that of employing a member of staff since the freelancer does not need office infrastructure, is not entitled to social security etc. The corporate sector can look at incentives like minimum billable hours, travel incentives, insurance coverage etc. In a country like India, since the government is laying emphasis on skill development, incentives like tax breaks and health insurance etc. will encourage this model of work.
  • Payment guidelines: For many freelancers, seeking and closing payment with some of their clients is a pain area since sometimes, clients refuse or fail to pay on time. Although this also depends on the understanding between the two parties involved, regulations governing this area could ensure greater compliance and encourage other professionals who may be considering freelancing as a career option.  Singapore’s NTUC (National Trade Unions Congress) is exploring ways to protect the interests of freelance or independent professionals. However, there is no evidence of any such effort in India.
  • Disputes resolution: The individual freelancer does not have the legal or the corporate muscle to take on the might of their clients in case of disputes and have to give in and move on to other clients, in case of disputes. Laws, which can define disputes and resolution mechanism, could be helpful to the industry. Litigation, arbitration and mediation are the three formal dispute resolution procedures in mature markets.
  •  Support transition to entrepreneurship: All freelancers are mini-entrepreneurs. They work for themselves or are self-employed. Making it easier for them to register companies and get into the formal mode of business structure will give them the corporate and legal structure they currently lack. Singapore is the leading country in the world in terms of ‘ease of starting a business,’ while India ranks at a dismal 142. 

Working on these initiatives, which are already active in some of the developed markets as mentioned, will only go on to motivate more professionals to consider working for themselves, which will be win-win situations for their clients as well.

We will be happy to hear what you think of what you have read. Please feel free to share your experiences, agreements or disagreements in the comments section. 

 

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Amar is a freelance writer, author and stand-up comedian based in Delhi. 

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