Unit 1: Building Blocks - Orthelious/PDCP_F19 GitHub Wiki

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Building Blocks

A primer on how to form a business and understanding your business relationships with others

For every business in operation, there are two essential questions that must be answered: who are you and how do you work with others?

These questions form the basis on which we will build the rest of the course. That's why this unit is titled "Building Blocks."

We'll start with a primer on basic business structures, from sole proprietorships to corporations—examining the benefits and drawbacks of each—to answer the questions of "Who?".

Then the focus will shift to agency and employment to help us answer the question "How do we work with others?".

Chapters

  1. Business Structures and Models
  2. Agency and Representation
  3. Human Resources, Employment and Labor Law
  4. Self-Employment and Independent Contracting

1. Business Structures and Models

Two topics in this chapter:

A. Introduction to business structures and models
B. Common business structures

A. Introduction to Business Structures and Models

Understanding exactly who you are conducting business with is one of the first steps to empowering yourself in everyday business interactions.

From collaborators, to customers, to competitors—there are different strategies and methodologies for success with each. So we need to know who we are dealing with.

To start making sense of things, we need to answer two initial questions:

  • What kind of business are we dealing with?
  • What does the business do?

Understanding a business's structure and model can help answer these questions.

A1 — Business Structures

Understanding how a business is structured helps understand what kind of business we are dealing with.

What is a business structure?

  • The framework and/or legal establishment of an entity for conducting business.

  • A business structure defines what the business is, but not necessarily what the business does.

  • A business structure addresses questions like “Who owns the company?”, “How can I raise money?”, "Who is in control?" and “What taxes do I owe?”

  • You will also hear the term business structure used interchangeably with “Business Entities,” “Organizational Structures,” “Operating Models,” “Business Licenses,“ and ”Business Types.” They all, generally, mean the same thing as a business structure.

What do you think are the business structures of the following creative entities?

  • A fine art gallery?
  • A metropolitan museum?
  • A Broadway theater?
  • A 10-person design firm?
  • A music producer?
  • A studio artist?

A2 — Business Models

In its simplest form, a good business model tells us what a business's primary purpose and activities are. We're going to cover business models, and business plans, in-depth in Unit 7 — Business Models.

But briefly...

What is a business model?

Let's look at those creative entities again. What do you think their business models are?

  • A fine art gallery?
  • A metropolitan museum?
  • A Broadway theater?
  • A 10-person design firm?
  • A music producer?
  • A studio artist?

B. Common Business Structures

Time to get down to business! (groan. I'll see myself out).

There are literally hundreds of different combinations of business structures. Too many to delve into in this course. So, we're going to just cover the 6 basic structures that are not only the most common—but are also the structures you will most often interact with creative practices

We're going to cover the following common business structures in this chapter:

  1. Sole Proprietorships
  2. Partnerships — General and Limited
  3. Corporations — LLC, C Corp, and Non-Profit

Additionally, at the end of the chapter, I've included some information on less common business types and some additional resources.

...but first

// HOW TO TELL BUSINESS STRUCTURES APART

We're going to focus on 5 different factors that every business structure has with FORCE.
(I wanted a handy anagram, so please keep in mind the following is not in order of importance.)

  • [F]inance and taxes — What options does a business have to raise and/or make money? What is the tax burden for the owner(s)?

  • [O]wnership — Who owns this thing? What powers and responsibilities does ownership come with?

  • [R]isk — Who's assets are at risk? Who is personally responsible?

  • [C]ontrol — How are decisions made?

  • [E]stablishment — What is the minimum requirement for forming this business structure?

Wait... the FORCE! I feel a metaphor coming on...

Star Wars Intro Card

B1 — SOLE PROPRIETORSHIPS


We open on our hero Finn, alone in the desert. Finally free of the grips of the First Order, he can make his own decisions! But on his own, he also has the most risk...

What is a Sole Proprietorship?

A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business. source(https://bls.dor.wa.gov/ownershipstructures.aspx)

Sole Proprietorships are the default starting point. You engage in some business? Boom! You are automatically a sole proprietorship. You have complete control over your business and the profits, but you also have all of the risks and losses.

Let's take a look at a Sole Proprietor's FORCE:

Finances and taxes

  • Profits are taxed once. It’s all personal income tax.
  • Profits belong entirely to the owner. But so do the debts...
  • Ability to raise funds is limited to personal capital, personal gifts, and loans.
  • Can you sell part of your business? No. Legally, a Sole Proprietorship can only have one owner. If you want additional owners, you must incorporate.

Ownership

  • Singular owner. You're the boss, buddy.
  • No legal distinction between business and the owner.
  • You cannot transfer ownership.

Risk

  • Sole Proprietorships carry the largest level of risk. Because there is no seperation between the business and the owner, your business assets and personal assets are the same.
  • Unlimited Liability. You and you alone are responsible if anything happens.

Control

  • Singular owner. You're the boss, buddy.

Establishment

  • While there are not necessarily mandatory requirements to start a Sole Proprietorship, there are best practices like having a business banking account and sometimes you will need industry-specific licenses or permits.

Which of our creative entities do you think could be a Sole Proprietorship? What are some of the advantages? Disadvantages?

  • A fine art gallery?
  • A metropolitan museum?
  • A Broadway theater?
  • A 10-person design firm?
  • A music producer?
  • A studio artist?

B2 — PARTNERSHIPS

Partnerships are just what they sound like: two or more partners. Sharing the burden, sharing the success and sharing the losses. This is the second easiest business structures to form and provides for a great deal of control, but like sole proprietorships comes with a decent amount of risk.

We're going to cover two types of partnerships: General Partnerships and Limited partnerships.

// GENERAL PARTNERSHIPS


Oh, look! Our hero Finn has met our other hero Rey! They join forces, making their liklihood of success greater, but also sharing the risk...

What is a General Partnership?

A General Partnership is composed of 2 or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a business. Each partner shares the profits, losses, and management of the business, and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement. source(https://bls.dor.wa.gov/ownershipstructures.aspx)

Finances and taxes

  • Profits pass directly to the partners
  • Each partner is responsible for their own personal taxes
  • Like Sole Proprietorships, ability to raise funds is limited to personal capital, personal gifts and loans.

Ownership

  • Requires two or more people
  • Ownership is automatically a 50/50 split unless spelled out in a partnership agreement.
  • Ownership could transfer to new partners (depending on the partnership agreement.)

Risk

  • Unlimited personal liability for partners.
  • Partners are liable for each other's actions!

Control

  • The partners are in charge.
  • Control is automatically a 50/50 split unless spelled out in a partnership agreement.
  • There are laws (vary state to state) that govern what a partner is able to do on behalf of the partnership.

Establishment

  • Like a Sole Proprietorship, there are not necessarily mandatory requirements to start.
  • The absolute best practice is to have a written partnership agreement in place! Makes the rules clear!

// LIMITED PARTNERSHIPS


Wait, who's that little ball droid?


Why, it's BB-8. It's doing his best to help out, but really it's just following these two because they can fly a ship and get it off-world. Sure, it has something to contribute but really it's a fairly limited partner.

What is a Limited Partnership?

A Limited Partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share fully in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business. source(https://bls.dor.wa.gov/ownershipstructures.aspx)

Finances and taxes

  • Profits are distributed to partners according to a partnership agreement.
  • Taxed once. Taxes pass to the individual.
  • General Partners pay self-employment tax (more on this in the Agency and Employment chapters)

Ownership

  • Requires two or more people.
  • There are two types of partners: General Partners (Major) and Limited Partners (Minor).
  • Ownership and transfers are defined by the partnership agreement(s).

Risk

  • Unlimited personal liability for General Partners.
  • Limited liability for the limited partners. Limited partners may have a limited say in what the business does, but they likewise have limited risk.

Control

  • Most often the General Partners are in charge, but Limited Partners do have some say in business operations. A partnership agreement would spell this out.
  • There are laws (vary state to state) governing what a General and/or Limited partner can do.

Establishment

  • Adding a limited partnership has to be done through a written partnership agreement to outline who is a General Partner and who is a Limited Partner.

Which of our creative entities do you think could work as a partnership? Would they have just general partners? Limited partners?

  • A fine art gallery?
  • A metropolitan museum?
  • A Broadway theater?
  • A 10-person design firm?
  • A music producer?
  • A studio artist?

B3 — CORPORATIONS

Cue ominious music...

Whereas sole proprietorships and partnerships can be formed instantaneously with a simple agreement, we're now crossing into the world of incorporation. The rest of the business structures we're going to cover have very specific filing and formation requirements.

What is a Corporation?

A Corporation is a more complex business structure. A corporation has certain rights, privileges, and liabilities beyond those of an individual. Doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations, such as increased licensing fees or decreased personal control. Corporations may be formed for-profit or nonprofit purposes. source(https://bls.dor.wa.gov/ownershipstructures.aspx)

To incorporate is to create a separate entity that could exist independent of the people who originally founded it. (For example: What happened to KFC after Colonel Sanders died?)

It's all about creating a layer of separation and protection.

Incorporation is a legal process that must be done through the government. Unlike a Sole Proprietorship or Partnership, you cannot create an incorporation on your own. Articles of Incorporation must be filed.

We're going to cover the following types of corporate business structures:

// LLC (LIMITED LIABILITY COMPANY)

Oh Han... you may play it like a handsome rogue who doesn't need anyone, but you're constantly adding people your crew! The crew of the Millenium Falcon is more than just its captain. Together they can share in the burden, the risk, the adventure! It could be a crew of one or a crew of many!

What is a Limited Liability Company?

A Limited Liability Company (LLC) is formed by 1 or more individuals or entities through a special written agreement. The agreement details the organization of the LLC, including provisions for management, assignability of interests, and distribution of profits and losses. LLCs are permitted to engage in any lawful, for-profit business or activity other than banking or insurance. source(https://bls.dor.wa.gov/ownershipstructures.aspx)

Finances and taxes

  • Profits pass to members according to the operating agreement.
  • Profits are taxed once as personal income tax. You'll hear this referred to as pass-through income.
  • In addition to loans, personal gifts and personal capital, LLCs can sell percentages of ownership in the company (Please note: this is not the same as stock!). Think of the show Shark Tank—the investors are buying an entire portion of the company that is pitching a product.

Ownership

  • One or more people can own. Percentages of ownership spelled out at incorporation.
  • Transfer of ownership to others is possible.

Risk

  • LIMITED (finally). With an LLC, personal assets are considered separate from business assets. (i.e. if you get sued, they can't go after your personal assets like your house or car)
  • LLCs are popular business structures because of the protections and flexibility they offer.

Control

  • Decisions can be made by owners or by appointed members (employees, agents, etc).
  • Decision-making and management would be best defined by an Operating Agreement.

Establishment

  • You must file Articles of Incorporation with the state government in which your business resides. The rules are different state to state.

// C CORPORATIONS


Ok, this one should be obvious.

What is a C Corporation?

A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable. source(https://www.sba.gov/business-guide/launch-your-business/choose-business-structure)

Finances and taxes

  • Profits are taxed TWICE. The corporation pays corporate taxes. Individual owners pay personal income taxes. This is the major drawback of a C Corp.
  • In addition to loans, startup capital and investments, C Corporations can sell limited ownerships in the company through the issuance of common stock.

Ownership

  • One or more people can own. Initial percentages of ownership spelled out at incorporation.
  • Transfer of ownership to others is possible.
  • Additional, limited owners can be added through the selling of common stock.

Risk

  • Personal assets are considered separate from business assets.
  • C Corp’s are popular to investors because of these protections.
  • Risk is the most limited! C Corp's are literally considered separate entities. This concept is called Corporate Personhood:

Corporate personhood is the legal notion that a corporation, separately from its associated human beings (like owners, managers, or employees), has at least some of the legal rights and responsibilities enjoyed by natural persons. Source(https://en.wikipedia.org/wiki/Corporate_personhood)

Control

  • Board members and appointed officers have control of the company. This is spelled out in the Articles of Incorporation and Corporate Bylaws.
  • Depending on the industry, there are tons of state and federal laws and regulations to follow.

Establishment

  • You must file Articles of Incorporation with the state government in which your business resides. The rules are different state to state.
  • Additionally, you must create Corporate Bylaws (rules of the corporation). While not required, it is nearly impossible to run a C Corp without bylaws.

// NON-PROFIT CORPORATIONS



It's the Resistance! Those scrappy do-gooders. They're not in it for the money, they are driven by a mission for good.

What is a Non-Profit Corporation

Nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don't pay state or federal taxes income taxes on any profits it makes. source(https://www.sba.gov/business-guide/launch-your-business/choose-business-structure)

Finances and taxes

  • Because of their charitable mission, non-profits do not pay income tax.
  • Additionally, when someone makes a charitable gift to a non-profit it is considered a gift, not an investment. Gifts do no grant ownership the way that an investment or stock purchase does.
  • There are no profits as well! All profits must go back into the organization to pay for programs and salaries, etc.

Ownership

  • Technically not owned in the traditional sense. Non-profits are considered public charities and are intended to have lives beyond their founders.

This is Important to remember. When you form a non-profit you are surrendering ownership to a corporate entity.

Risk

  • Personal assets are considered separate from business assets.
  • Very low personal risk! This is why many creative practices from non-profits (though, we will discuss why this is not always the best strategy).

Control

  • One or more appointed officers + a board of directors for oversight.
  • All non-profits have a board. They are responsible for general governance of the organization.
  • There are a ton of rules and regulations to follow.

Establishment

  • You need a minimum of three board members to form a nonprofit!
  • File Articles of Incorporation + Bylaws with the state government.
  • Plus additional filing with the Internal Revenue Service.

One last time, let's look at our creative entities. Where could a nonprofit corporate structure work?

  • A fine art gallery?
  • A metropolitan museum?
  • A Broadway theater?
  • A 10-person design firm?
  • A music producer?
  • A studio artist?

B4 — BONUS STRUCTURES

The business structures covered above are far and away the most common in US business, but there are many more structures available (though not all are recognized in all 50 states).

Here are just a few:

For the purposes of this course (and my sanity), we're going to stick to only the most common structures.

B5 — SOME RESOURCES

Here are some sites that I have found easy to comprehend and that further define the concepts from this unit.

2. Agency and Representation

~ Back to Table of Contents ~

This is the first of our chapters to focus on relationships. How do we define our relationship to other people when conducting business? Many of these answers can be found in the legal concept of Agency.

"The definition of agency law deals with agent-principal relationship and it's a relationship where one party has the legal authority to act in place of another." Source: upcounsel.com(https://www.upcounsel.com/definition-of-agency-law)

Some key questions Agency helps us answer:

  • Do they represent us? To what extent?
  • Are they our employee? An independent contractor?
  • Do I represent them? To what extent?
  • Am I an employee or an independent contractor?
  • How does our relationship affect our power and control over one another?
  • What laws do I have to follow? Do they?
  • How do we start a relationship? How do we end one?

Three sections to this chapter:

A. Relationships
B. Defining Agency
C. The Essential Four Components

A. Relationships

As an introduction to this topic, we're going to start things off with these three primary types of agency relationships:

  1. PRINCIPAL AND AGENT
    A party who conducts business on behalf of and in the interest of a principal.

  2. EMPLOYER AND EMPLOYEE An agent who works for a principal AND whose methods and working conditions are controlled by the principal.

  3. PRINCIPAL AND INDEPENDENT CONTRACTOR
    A party who is contracted to do work for a principal, but whose methods and working conditions are not controlled by the principal.

These relationships can appear to be straightforward when you're talking about only two or three parties conducting a single piece of business—but few projects are limited to just a few parties.

Let's take a look at some examples of projects in creative practices that involve multiple, sometimes complex, relationships:

For each of these examples, try to guess how many parties are involved and what their business structures could be. And what are their relationships of these parties to each other?

  1. Mimus · ATONATON
  2. TransMilenio
  3. The Mexico '68 Olympics · Ramirez Vazquez
  4. Politicized Landscapes · Julie Mehretu
  5. A Subtlety · Kara Walker
  6. Fyre Festival · Billy McFarland & Ja Rule
  7. Space Program · Tom Sachs*

B. Defining Agency

The relationships in the prior examples all represent some form of an agency relationship.

A1 — What is agency?

AGENCY — A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party.

An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged with a third party bind the principal.

// Why is Agency Important?

  1. Augmentation — You can augment your creative practice utilizing the skills and knowledge of others.

  2. Representation — You can empower someone to carry out your wishes and who has your best interests in mind.

  3. Employment — The Understanding agency is an essential aspect of being an employee and/or employer and knowing whether someone is an employee or an independent contractor.

A2 — Some Helpful Definitions

  • FIDUCIARY — A legal and/or ethical relationship of trust. A person in a fiduciary relationship is obligated to act in the best interest of another.
  • PRINCIPAL — The party who authorizes another (an agent) to act on their behalf. A principal could be an individual or a group.
  • AGENT — The party who is authorized to act on another’s (the principal) behalf. An agent can also be an individual or a group.
  • THIRD PARTY — Any person or party outside of the two primary parties (principal and agent).
  • EMPLOYEE — A person (agent) hired to perform duties on an ongoing basis for a principal (employer), whose work conditions and methods are strictly controlled by the principal.
  • INDEPENDENT CONTRACTOR — A person hired to perform limited, specific duties for a party according to a contract, for a specific period of time. The independent contractor's work conditions and methods are not strictly controlled by the principal.

A3 — The Common Types of Agency

  1. GENERAL AGENT — Authorized to conduct every kind of business for the Principal.

    As we discussed in the Business Structures chapter, the Sole Proprietor is the default starting point. Much in the same way, a General Agent is the starting point for Agency relationships. Unless you further define the relationship with your agent, they are going to be a General Agent and empowered to conduct every kind of business for the Principal.

  2. SPECIAL AGENT — Authorized to conduct only specific business activities as outlined in a contract. There are rare cases where you want an agent to conduct EVERY kind of business. Agents are usually limited for a specific purpose. For example, A real estate agent helps you buy/sell a house, a lawyer represents you in legal affairs, an insurance agent for insurance claims.

    These relationships are all spelled out in an agreement!

    What kind of business would the following agents in creative practices conduct on your behalf?

    • A talent agent?
    • A gallery agent?
    • A record company representative?
    • A tour manager?
    • A studio manager?
    • A sales broker?

  3. AGENT WITH INTEREST — The agent possesses interest (owns or controls) some aspects of the Principal’s business.

    This is an agent with some skin in the game. They will benefit personally from acting as an agent for your business. For example: If an agent representing a author's new book is also a contributing writer, their decision-making will be affected more so than if they had no ownership over the product.

    What's a way that an Agent with Interest could be negative?

  4. SUBAGENT — An secondary agent who is representing both the primary agent and principal.

    Batman empowers Robin to aid him in his fight against crime. If Alfred, the Butler, is commanded by Robin to aid them in their fight against crime, Alfred is acting as a subagent. He is both an agent for the Principal (Batman) and the Agent (Robin), but because he is taking commands from Robin, he is acting as a Subagent.

  • EMPLOYEE/EMPLOYER — An agent who works for a principal, whose methods and working conditions are controlled by the principal.

    If you've had a job in high school or college, this is most likely the relationship you are most familiar with. As an employee, you have to do your job according to the exact conditions laid out by the Principal (your boss).

    Isn't that like every job? Not necessarily. The type and degree of control are one of the primary factors in determining if you're an employee or an independent contractor (more on this later).

C. The Four Essential Components of Agency Relationships

The are four essential components that help us determine what type and to what extent an agency relationships exists:

C1 — FORMATION · CONTROL · AUTHORITY · LIABILITY

  1. FORMATION
    How are agency relationships started?
    There are four primary, somewhat wonky, ways to form an agency relationship:

    • By Agreement: Both parties agree to a relationship by verbal or written agreement.

    • By Ratification: A third party sets up the relationship, and the agent and the principal agree. Think of this like matchmaking.

    • By Operation of Law: Agencies that are recognized by courts in the absence of a formal agreement. Think of family relationships—in an emergency, your parents or guardians would act as your agents.

    • By Estoppel: A second party gives a third party the impression that they work for the Principal—even though there is no established agent/principal relationship. For example, the 2nd party gives the 3rd party a sales offer letter on your letterhead, even though the 2nd party is not your agent. The 3rd party can reasonably assume an agency relationship exists. This is a bad thing.

  2. CONTROL
    What level of control does the Principal have over the Agent?
    This component is about to what extent does a Principal exercise control over an agent.

    • What is the scope of work or job duties for the agent?
    • How much direction and control does the principal exercise over the agent’s work?
    • Can the principal determine the agent’s working conditions?
    • Is the relationship exclusive?

  3. AUTHORITY
    What is the agent empowered to do?
    i.e. How much authority can an agent operate with on the Principal's behalf?

    Two types:

    • Actual Authority — The principal assigns express or implied powers to the agent.
    • Apparent Authority — The principal, knowingly or mistakenly, permits an agent to act with authority they were never expressly granted. (This is where agency by estoppel could come into play.)

  4. LIABILITY Can you be held responsible for an agent's actions?

    • Certain agents are able to enter into legally binding agreements on your behalf.
    • You could also be held liable for an agent's conduct.

C2 — Let's take a look back at our examples from earlier in this chapter.

How would you now define the various agency relationships?

  1. Mimus · ATONATON
  2. TransMilenio
  3. The Mexico '68 Olympics · Ramirez Vazquez
  4. Politicized Landscapes · Julie Mehretu
  5. A Subtlety · Kara Walker
  6. Fyre Festival · Billy McFarland & Ja Rule
  7. Space Program · Tom Sachs

3. Human Resources, Employment and Labor Law

~ Back to Table of Contents ~

Four sections in this chapter

A. The Employer/Employee Relationship
B. Labor Law and the Rights of the Group
C. Employment Law and the Rights of the Individual
D. A Note On Employment Ethics

A. The Employer/Employee Relationship

A1 — Why are human resources and employment law important to creative practices?

hy does understanding human resources and employment law matter? Whether you run a business yourself or work in one as an employee, you are governed by a set of (hard-won) rights and responsibilities. It doesn't matter what the industry is, we all have to abide by these rules.

The largest set of these laws and regulations apply to how employees are treated. Not fully understanding the implications of how you treat your employees (right or wrong) can be major. Likewise, it's important as an employee to understand your rights.

Let's look as some local examples:

DISCLAIMER: I was an intern at the Mattress Factory and have worked in different capacities with PF/PCA and KST. By presenting these cases, I am not taking an explicit stance nor am I representing the opinion of this university. I've used these examples as they are well-publicized and relevant to our topic.

A2 — A working definition of "Employee"

EMPLOYEE — A person (agent) hired to perform duties on an ongoing basis for a principal (employer), whose work conditions and methods are strictly controlled by the principal.

The Employer/Employee relationship is one of the most common types of agency relationships. The employer (the principal) controls all the aspects of the employee(s)'s job.

This can include:

  • When the employee is paid and at what rate

  • What conditions (i.e. office or shop) they will work in

  • What tasks the employee must perform

  • What equipment the employee must use to complete their job

    And many more...

What are some employer/employee experiences from your own life and creative practice?

A3 — Laws governing the Employer/Employee relationship

While an employer has a great deal of control over the employee's job, they do not have unlimited authority. All employers must adhere to two basic categories of US law when it comes to employment:

  • Labor Law — The set of laws pertaining to the groups of workers. These set of laws regulate unions and collective action. source(http://www.gotnbc.com/Labor%20Law%20101.pdf)
  • Employment Law — These laws regulate the rights of the individual worker.

It is essential to understand the basics of these laws and practices if you hope to hire and manage employees. In large groups situations (more than 50 people) like corporations, adherence to these laws and regulations is usually handled by a Human Resources manager or department. But for smaller businesses, this is usually handled by general management.

PLEASE NOTE: I am only covering federal laws. Each state has its own additional set of laws governing labor practices and regulations.

B. Labor Law and the Rights of the Group

In general, Labor Law references the area of law that governs how a group of employees must be treated and their right to collective action. Think of a factory, a farm, a museum, the production of a film—all require the efforts of a group of employees to succeed.

This is especially important in creative practices regarding the formation of, and how to work with, labor unions.

Some helpful definitions:

B1 — Labor Laws and Regulations to be Aware of:

// The Fair Labor Standards Act

A federal law passed in 1938 that establishes a few key practices and regulations

  • The right to a minimum wage
  • The right to overtime pay when exceeding a 40-hour workweek
  • Prohibits most employment of minors

There are MANY additional acts that build on this law, further detailing the rights of the collective workforce. You can check out an abbreviated list here on wikipedia

// National Labor Relations Act

Established in 1935, this act effectively enshrines the rights of workers to form labor unions (and other types of organizing activities) and collectively bargain to improve working conditions and wages.

C. Employment Law and the Rights of the Individual

As a complement to Labor Law, we have employment law, which defines the rights of an individual worker and job applicants.

Employment law, generally, deals with the following issues for the individual worker:

  • Discrimination
  • Wrongful termination
  • Wages and pay equity
  • Taxation
  • Harassment
  • Right to privacy
  • Workplace safety
  • 'Whistleblower' rights
  • Leave policies
  • Hiring processes

Want to take a deep dive on employment law and your rights? I've found the website FindLaw to be very helpful as a starting point: Employment Law and Human Resources

C1 — Some Key Laws and Regulations to Be Aware of:

// Title VII of the Civil Rights Act of 1964

// Americans With Disabilities Act

// Age Discrimination in Employment Act

// Fair Labor Standards Act

// Family and Medical Leave Act

C2 — Resources

Here are a few starting points, specifically from the creative practitioner point of view, for reading more about issues of wages and labor:

Here is a good book to keep on your shelf if you have employees:

D. A Note On Employment Ethics

This portion of the lecture is essentially an op-ed by your instructor. As you create your own collaborations and businesses, I hope you will strongly consider the following ethical suggestions

D1 — Be Open to Criticism to Invite Diverse Opinions

Diversity and inclusion should be a top priority for every company. It is my personal opinion that having the greatest variety of experiences, cultural and professional backgrounds, and perspectives build the greatest framework for success.

The way to get there is to create a healthy work environment for spirited, professional debate. The way to create a diverse and healthy workplace is to invite constructive criticism.

D2 — Make the Rules Easy to Find

Employee handbooks are a great standard to adhere to. Post important policies in the break room. Review your policies annually with your employees. Workplace rules are important, but not everyone will automatically know them and all too often the rules are misinterpreted through rumor and gossip.

Do the work for your employees and make workplace policies easy to find.

D3 — The Rules Should Apply to Everyone

My father, who has an MBA and worked in the corporate telecom world for 40 years, had an essential piece of advice when it came to managing employees:

"Just make sure you treat everyone the same."

Making special cases, bending the rules for personal friends, not establishing clear policies — this is what creates the perfect petri dish for resentment to grow. If you have employees, build the work culture that you want, but build it in such a way that policies protect your employees, empowers them, and create a level playing field.

Avoid a system that awards special favors or exceptions. This is what can lead to a "boys club" atmosphere or contribute to systemic discrimination.

D4 — Some Rules Should Be Broken, Though

In contradiction to the last point, if you find a rule is creating an environment of disadvantage or discrimination—change the rule! Healthy workplaces are in a constant state of evolution and flux.

D5 — Pay People Equitably.

Pay people what they're worth. If you can't pay them what they're worth—be honest and up front as to why before the work begins. Always have logic and reasoning behind pay rates.

And make sure that if they are doing the same work as another employee with the same skill level, that they receive the same pay.

D6 — Document! Document! Document!

Anytime you have an issue with an employer or anytime you need to discuss a human resources related issue with an employee—write it down.

  • Keep good records of when you've reprimanded someone.
  • Keep good records of hiring and promotion processes.
  • Keep good records of what someone's job duties are.
  • Keep good records of annual performance reviews and evaluations.
  • Keep good records when you fire someone.
  • KEEP GOOD RECORDS, Y'ALL.

D7 — Deal with Problems Immediately and Seek Professional Advice

Think of the last time you brought up an issue to your boss. I'm going to venture a guess that the longer it took for them to address it, the more it felt like they weren't taking you seriously.

Deal with problems immediately. If you don't know what to do, seek professional advice from a human resources professional or an employment law attorney.

D8 — Internships

Ah... internships. It is my opinion that internships (unless you're receiving course credit) should be paid positions. If you want to volunteer your time and your skills for no pay—my advice is to get as much of an educational experience as possible. But if you're just fetching coffee for the boss and sitting at a front desk twiddling your thumbs—that is a job and you should be paid.

4. Self-Employment and Independent Contracting

~ Back to Table of Contents ~

This is a brief chapter. The goal here is to draw a distinction between a traditional employee and an independent contractor.

Not understanding this distinction can be one of the primary ways creative practitioners are taken advantage of.

A. Employee VS. Independent Contractor

A1 — Definitions

// EMPLOYEE — A person hired to perform duties on an ongoing basis for an entity, whose work conditions and methods are strictly controlled by the principal.

As we’ve discussed in Chapter 2, the employer/employee relationship is a type of agency relationship.

  • The employee (agent) work environment and methods are controlled totally by the employer (principal)
  • This relationship is additionally governed by labor and employment law.

// INDEPENDENT CONTRACTOR— A person hired to perform limited, specific duties for a party according to a contract, for a specific period of time.

Their work conditions and methods are not strictly controlled by the principal, but by the terms of the contract.

An independent contractor is not (automatically) an agent in their relationship to the principal.

  • The keywords here are “independent”, "limited" and "contract".
  • This relationship is governed by the contract between the two parties and legal standards of contract law.

A2. Understanding the Difference

It's not just whether or not a principal calls you an employee or an independent contractor. The relationship has to be defined and has to abide by a set of standards set out in US law.

The IRS gives us at least these three top-level tests to determine whether someone is an employee or an independent contractor:

1. Behavioral

Does the company control or have the right to control what the worker does and how the worker does their job?

  • If the principal is supplying the office, the equipment, sets your hours, etc — you are most likely an employee.

  • If you operate independently of the principal and determine for yourself how the job will be completed—you are likely a contractor.

2. Financial

Are the business aspects of the worker’s job controlled by the payer? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

  • How, when and in what manner you are paid for a job is a major determining factor. We're going to cover this at a greater level of detail in Unit E.

3. Type of Relationship

Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?

  • If you are receiving employee-type benefits, you are likely an employee.
  • If you do not receive employee-type benefits, you are likely a contractor.
  • Additionally, the contract between you and the principal should expressly state as much. We will cover more of this in Unit C.

Will the relationship continue and is the work performed a key aspect of the business?

  • If yes, then you are likely an employee
  • If no and the relationship or key aspect of the business has a set end date — you are a contractor.

A3 — Consequences

There are a number of reasons, but the key ones are:

  • Independent contractors pay higher taxes.
  • Independent contractors do not have access to company benefit plans (like health insurance, retirement, etc).
  • Non-salaried Employees are able to claim overtime pay for work over 40 hours per week. Independent contractors cannot.