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American Samoa

Freelancing and Independent Contracting

Understand the distinctions and regulations for freelancers in American Samoa

Difference employees and contractors

Classifying workers correctly as either employees or independent contractors is crucial in American Samoa for both employers and workers. This distinction impacts tax withholding, benefit eligibility, and legal responsibilities.

The "Right to Control" Test

American Samoa courts primarily rely on the "right to control test" to differentiate between employees and independent contractors. This test examines the level of control an employer exerts over the worker's performance.

Key Factors Influencing Classification

Here are some key factors courts consider when applying the "right to control" test:

  • Behavioral Control: Does the employer dictate how the work is performed, including specific work hours, methods, and equipment used?
  • Financial Control: Does the employer reimburse expenses, provide benefits, or withhold taxes?
  • Relationship of the Parties: Is there a written contract specifying an independent contractor relationship? Does the worker have the right to subcontract the work?

Additional Considerations

While the "right to control" test is central, courts might also consider other factors:

  • Permanency of the Relationship: Is the work ongoing or a one-time project?
  • Skill Required: Does the work require specific skills or training typically provided by an employer?
  • Integration into Business Operations: Is the worker's work essential to the core business of the employer?

Importance of Proper Classification

Misclassifying workers can lead to legal and financial repercussions for employers in American Samoa. Potential consequences include:

  • Back Taxes and Penalties: The employer may be liable for unpaid payroll taxes, unemployment taxes, and worker's compensation insurance.
  • Employee Benefits: Misclassified employees may be entitled to benefits like overtime pay and minimum wage.
  • Employee Lawsuit: Workers might sue for employee rights violations if misclassified.

Due to the complexities involved, it's highly recommended to consult with an attorney specializing in employment law in American Samoa for specific guidance on worker classification. They can analyze the specific situation and advise on the appropriate classification based on the "right to control" test and other relevant factors.

Independent contracting

Independent contracting arrangements are gaining traction in American Samoa, thanks to the burgeoning gig economy. This work style comes with its own nuances, including contract structures, negotiation practices, and the industries that commonly utilize independent contractors.

Contract Structures for Independent Contractors

Formalizing the agreement between an independent contractor (IC) and a client is crucial in American Samoa. Here are common contract structures:

  • Independent Contractor Agreement: This comprehensive document outlines the scope of work, payment terms, and project timeline. It should explicitly state the independent contractor relationship.
  • Statement of Work (SOW): A concise document outlining the specific project deliverables, timeline, and payment terms for a short-term engagement.

Note: Consulting with a lawyer specializing in American Samoa contract law is recommended to ensure the agreement adheres to local regulations and protects both parties' interests.

Negotiation Practices for Independent Contractors

Unlike salaried employees, independent contractors have more autonomy in negotiating their rates and terms. Here are some negotiation tips for ICs in American Samoa:

  • Research Market Rates: Understanding the prevailing rates for similar work in American Samoa strengthens your negotiation position.
  • Clearly Define Scope of Work: Ensure the contract explicitly outlines deliverables, timelines, and revision processes to avoid misunderstandings and potential disputes later.
  • Payment Terms: Negotiate clear payment terms, including milestones for payment if applicable, and preferred payment methods (checks, wire transfers, etc.).
  • Consider Benefits: Since ICs typically don't receive employer-provided benefits, factor in potential costs of health insurance or professional development when determining your rates.

Common Industries Utilizing Independent Contractors

Several industries in American Samoa frequently engage independent contractors:

  • Construction: Specialized construction workers like electricians, plumbers, or carpenters often operate as independent contractors.
  • Information Technology (IT): IT professionals with specialized skills, like web developers or programmers, can find opportunities as independent contractors.
  • Creative Industries: Graphic designers, photographers, and writers can leverage their skills through independent contracting arrangements.

Benefits and Considerations for Independent Contractors

Independent contracting offers flexibility and control over work schedules. However, ICs are responsible for self-employment taxes and securing their own health insurance. Carefully evaluate these factors when considering independent contracting opportunities.

Intellectual property rights

Freelancers and independent contractors in American Samoa, like elsewhere in the United States, should be aware of intellectual property (IP) rights and how they apply to their work. Understanding ownership of the work you create is essential to avoid disputes and ensure you are properly compensated.

Copyright protects original works of authorship, including literary works, artistic works, computer software, and sound recordings. In the absence of a written agreement between the freelancer and the client, the general rule is that the freelancer owns the copyright to the work created.

This means the freelancer has the exclusive right to:

  • Reproduce the work in copies
  • Prepare derivative works based on the work
  • Distribute copies of the work to the public
  • Perform or display the work publicly
  • License or sell the copyright

Contractual Agreements

However, this presumption of ownership by the freelancer can be overcome by a written contract. The contract can specify that the ownership of the copyright is transferred to the client upon payment or upon the completion of the project.

It is highly recommended for freelancers and independent contractors to have a written contract with their clients that clearly outlines ownership of the copyright and any other intellectual property rights associated with the work. The contract should also specify how the work can be used by the client, including any restrictions on use or distribution.

Work Made for Hire

An exception to the general rule of freelancer ownership exists for "works made for hire". A work made for hire is a work created by an employee within the scope of their employment or a work specially ordered or commissioned for use as a contribution to a collective work, such as a film or anthology, or as a part of a statutory compilation or compilation of existing works, if the parties expressly agree in a written instrument that the work shall be considered a work made for hire.

In American Samoa, which follows U.S. copyright law, if a work is determined to be a work made for hire, the copyright ownership automatically belongs to the commissioning party, even in the absence of a written agreement.

Other Intellectual Property Rights

In addition to copyright, freelancers and independent contractors may also create works that involve other intellectual property rights, such as trademarks or patents. The ownership of these rights will also depend on the specific circumstances and any agreements between the freelancer and the client.

For instance, a freelancer who designs a logo for a client may retain ownership of the copyright in the logo design, but the client may acquire the trademark rights to use the logo in connection with their business.

Tax and insurance

As a freelancer or independent contractor in American Samoa, you are considered self-employed by the Internal Revenue Service (IRS). This means you are responsible for paying self-employment taxes, which cover both Social Security and Medicare.

Self-Employment Tax

The self-employment tax rate is currently 15.3% (as of 2024) which covers both the Social Security and Medicare taxes that traditionally employers and employees split. This means you will pay 15.3% of your net earnings (profit) from self-employment up to a maximum taxable income amount set by the Social Security Administration (SSA) each year. In 2024, the maximum taxable income amount is $147,000. If your net earnings exceed this amount, you will only pay self-employment tax on the first $147,000.

Federal Income Tax

In addition to self-employment tax, you are also responsible for paying federal income tax on your net earnings from self-employment. The tax rates are the same as for salaried employees.

Estimated Tax Payments

Since you are self-employed, you are required to make estimated tax payments throughout the year to avoid penalties. Estimated taxes are quarterly payments of your anticipated income tax liability for the year.

Tax Filing Requirements

As a self-employed individual, you are required to file a tax return each year to report your income and expenses and to pay any taxes owed. The specific form you need to file will depend on your tax situation.

Insurance Options

As a freelancer or independent contractor, you are responsible for obtaining your own health insurance and other types of insurance.

Health Insurance

There is no requirement to have health insurance in American Samoa or the United States, but it is highly recommended. You can purchase an individual health insurance plan through a local insurance broker or agent.

American Samoa Marketplace

While there is no official government-sponsored health insurance marketplace in American Samoa, residents can explore plans offered by private insurance companies.

Business Insurance

You may also want to consider purchasing business insurance to protect yourself from liability claims. This type of insurance can cover things like property damage, bodily injury, and errors and omissions.

Other Insurance

Depending on your specific business, you may also need other types of insurance, such as professional liability insurance or workers' compensation insurance. It is important to shop around and compare rates from different insurance companies before you purchase a policy.

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