Legal Changes That Will Impact the Freelance Economy in 2025
Dec 16, 2024
In the US, the freelance workforce stands at 76.4 million, with projections suggesting an increase to 90.1 million by 2028. This trend is mirrored in the EU, where, as of 2023, there were 27.97 million freelancers, anticipated to skyrocket to 350 million by 2030.
The stats are clear. The freelance economy is snowballing, highlighting an increasing need for businesses engaging with freelancers to fully understand the ever-shifting legal frameworks governing their relationships.
If you're interested in staying informed about the rapid legal changes affecting freelance workers, you've come to the right place. This blog post is designed to keep you updated and equipped with the knowledge you need to navigate the evolving legal landscape.
Let's take a look:
Legal Updates Every Freelancer and Employer Should Know
Here's a rundown of the latest key legislations significantly affecting both employers and freelancers:
The Dutch DBA Act (Employment Relationships Deregulation Act): initially launched in 2016, is slated for amendments by 2025, aiming to further clarify the distinctions between freelancers and employees.
The Freelance Isn’t Free law in New York: enacted in 2024, offers robust protection against wage theft and mandates written agreements for freelance engagements to enhance transparency.
California's SB998, also known as the Freelance Worker Protection Act (FWPA): Will take effect in 2025 and is set to broaden safeguards for freelancers, including the requirement for written agreements that formalize freelance work.
Massachusetts’ Wage Law: In 2024, the Massachusetts Appellate Court entertained employer appeals challenging aspects of the state's Wage Law concerning the classification of independent contractors.
To manage freelance work effectively in a shifting legal environment, it's essential to grasp the consequences and possible penalties of not following these changing laws:
Freelancer Protection Laws: The Consequences
Businesses that fail to comply with these new regulations might face significant legal and financial repercussions, including fines, lawsuits, and damage to their reputation, which, needless to say, could have long-lasting impacts on their operational and economic health.
These risks emphasize the importance of companies proactively updating their internal policies and systems to comply with evolving legal standards.
With that said, let’s explore the specific implications and requirements of these laws in more detail:
Netherlands (The Dutch DBA Act)
In 2025, the Dutch tax authorities will step up controls under the Deregulation of Labor Relations Act (DBA) to address false self-employment. Although the tax authorities is urging businesses and organizations to be compliant, they will not impose fines next year if employers violate the DBA Act. Earlier, then-Secretary of State for Finance Idsinga (NSC) announced that fines would be dealt with “cautiously” next year to ensure a “soft landing.” So, 2025 will still be a year of transition. Fines would only follow in 2025 if employers knowingly go wrong.
This initiative is designed to protect the 1.6 million freelancers (in Dutch also known as ZZP’ers) in the Netherlands by ensuring they're genuinely self-employed rather than improperly classified as non-employees, a practice employers often use to skirt the responsibilities of payroll taxes and benefits.
Under this initiative, both employers and freelancers are required to assess their work arrangements to determine whether they reflect independent contractor status or more closely resemble an employment relationship.
If an employee role is misclassified as self-employment, it will be treated as disguised or false self-employment, making the employer responsible for employment obligations.
To aid in compliance, the government provides an online tool (available in Dutch) that evaluates employment relationships and helps clarify the nature of work arrangements. Additionally, model agreements are accessible to guide the structuring of business relationships, helping to prevent misclassification as false self-employment.
New York (Freelance Isn't Free law)
The New York Freelance Isn't Free Act, established in 2024, is designed to protect an array of freelancer rights by requiring clear, written contracts for individual assignments, either by itself or when combined with other contracts over the prior 120 days, paying $800 or more.
Starting May 20, 2025, the New York Freelance Isn't Free Act requires that contracts between freelancers and businesses, whether in digital or physical form, include specific details. Both parties must sign these contracts, which should clearly outline the following:
Work description: A detailed explanation of the work the freelancer will perform.
Payment information: The total amount to be paid, including the rate and payment method.
Payment deadlines: Specific dates by which the freelancer must be paid, ensuring they receive timely compensation.
Contractual details:
The name and postal address of both the freelancer and the business.
An itemized list of all the freelancer's services detailing each service's value and rate.
A mutually agreed deadline by which the freelancer must submit a comprehensive list of all work completed.
It's also worth noting that businesses must retain the contract for at least six years.
California (Freelance Worker Protection Act (FWPA)
California's Freelance Worker Protection Act (FWPA), also known as SB998, mirrors New York's Freelance Isn't Free law. Set to take effect on January 1, 2025, the FWPA covers professional services costing $250 or more.
This act requires that contracts between freelancers and businesses must be documented in writing—either physically or digitally—and signed by both parties. These contracts must include details such as:
Each party's name and address
A clear description of the services to be provided by the freelancer.
A date by which the freelancer must submit their services to meet the business's deadlines
Payment terms, including the amount and the method of payment.
Specific deadlines for payment to ensure freelancers are paid promptly.
Again, it's worth knowing that contract copies must be held for at least four years.
Massachusetts
2024 saw two significant appellate court decisions establish clarifications of when the ABC independent contractor test is applicable and both hinged on the questions of what defines "service" and who is delivering the service. The cases in question:
Patel et al. v. 7-Eleven, Inc., et al., 494 Mass. 562 (2024) (“Patel”)
Weiss v. Loomis, Sayles & Co., Inc., 104 Mass. App. Ct. 1 (2024) (“Weiss”)
Both focused on the applicability of a contentious aspect of the state's 2022 Wage Law, specifically the "ABC test" used to determine independent contractor status. Massachusetts strictly applies the ABC test, which presumes an employer-employee relationship exists unless the employer can satisfy all three prongs of the test. This makes Massachusetts one of the most difficult states for making compliant independent contractor classifications.
The central issue in these two recent court cases hinged on the specific conditions under which the ABC test should be implemented. The debate suggested the test should only apply when a freelancer (specifically, an individual and not an established business entity) has genuinely provided "service" to the employer business. The Patel case (in summary) determined that a franchisee does not provide a service to the franchisor by simply operating its franchised business as 7-Eleven contended. The Weiss case focused on who is the recipient of the services being provided, the employer end client or the legal entity (in this case an S-corp entity) that holds the contract for services with the employer client? The case decided the service provided to the employer client was a business-to-business relationship being provided by the established legal entity the worker established a year prior to the assignment in question. Important to note about the Weiss case was the fact that the worker established the legal entity a year prior to entering the assignment and that the establishment of a legal entity was not a requirement of entering into the independent contractor agreement with the employer client.
As such, both cases resulted in the determination that the application of the ABC independent contractor test was not applicable, therefore not employee misclassification as the plaintiffs contended.
Both cases offer important insights to how Massachusetts, and likely other states or courts to follow, focus on the who and what of the underlying services in independent contractor engagements.
How Do Employers Manage Changes to Freelance Laws?
While the above laws are beneficial, adhering to them comes with challenges and potential headaches for employers. So, to help you stay compliant, here are some practical steps:
Centralize contracts: Use a secure, cloud-based contract management system to access all contracts from the convenience of one place and use standardized templates to speed up the contract writing process.
Leverage automated compliance software: Invest in software that tracks worker classifications, flags compliance issues, and documents worker statuses. Automated tools ensure accuracy and consistency, giving businesses peace of mind.
Adopt a global payment system: Use a payment system that complies with tax regulations in every country you operate in. The system should support country-specific payment methods and perform Know Your Client (KYC) checks to avoid inadvertently paying individuals involved in illegal activities.
Consult with experts: Stay ahead of legal changes by conducting routine reviews with employment law experts in the countries where your business operates.
Communicate with freelancers: Create a clear and reliable communication system to keep freelancers updated on legal changes or policy updates that could impact them or your business. Open, consistent communication fosters trust and ensures everyone stays aligned and informed.
By integrating these steps into a comprehensive freelance management system, businesses can simplify compliance, reduce legal risks, and create a stronger foundation for productive and collaborative relationships with their freelancers.
How Bubty Can Help
With the increasing regulatory focus on worker classification, Bubty is expanding its newest service, Bubty Services, globally. This solution ensures that companies comply with local laws, when engaging freelancers and independent contractors. Through automated screening and routing, Bubty helps businesses navigate the complexities of compliance, minimizing the risk of misclassification.
Bubty Services evaluates the employment relationship between a company and its freelancers or independent contractors, in line with local regulations. If an independent contractor does not meet the necessary criteria, Bubty provides the Agent of Record (AOR) service, acting as the official legal intermediary between the company and tax authorities, Bubty assumes full responsibility for the compliant engagement of freelancers and independent contractors. Bubty indemnifies clients against potential misclassification risks, shielding them from non-compliance liability. At the same time, the client retains full control and flexibility over their freelance engagements. To scale Bubty Services to over 190 countries, Bubty has raised $3.3 million in additional seed funding from its existing investors.
Want to learn more about Bubty Services or book a call with one of our experts? Click here
