Types Of Contracts All Freelancers Should Know As 2+2
Updated: January 21, 2020
Guest Article: This is a guest article by Erika Rykun
The promise of a better life and a flexible schedule is tempting more people who feel stuck in a 9-to-5 job to jump into the freelancing pool. According to the Freelancing in America survey, 35% of US employees made the switch and are now freelancing full-time while others toy with the idea as a side job.
However, being a freelancer is not as freeing as some might think. In fact, it can be more nerve-wracking than a regular job since you are in charge of every aspect of your professional life.
This means you are also in charge of establishing the legal terms of every collaboration and protecting your interests through iron-clad contracts. Still, unless you have legal knowledge in the niche of work contracts, this can be a bit difficult to do, which leaves you open in the face of clients with access to a legal advisor.
So, to avoid any mishaps and keep your freelancing business in the run, you must be accustomed to the following types of contracts.
Independent Contractor Agreements
People tend to put independent contractors and freelancers in the same category, but there are several subtle differences one should know before signing a contract.
First, both entities wok as collaborators and not as employees, which means they work under self-employment tax. In addition, the client is not in control of how or when the work is done, they just receive the results and evaluate them.
Both freelancers and independent contractors can:
- Subcontract parts of the project or all of it
- Choose their own pace and schedule
- Work from a remote location of their choice
- Set their own rates
- Have multiple customers at the same time
On the other hand, an independent contractor, while it often operates as a freelancer, it is more likely to have a longer collaboration with one client. In addition, they may work at the client’s location and may be limited to working with one client at a time (by the nature of work or contract).
Lastly, independent contractors are also known to work through agencies (although many do work on their own). If this is the case, the agency will be the one paying their taxes and establishing hourly rates.
Each project is subject to deadlines and previously agreed-upon outcomes. In addition, the client can request a collaborator to sign an NDA (Non-Disclosure Agreement) tailored to their needs and wants. Given that freelancers are more likely to work with several customers at a time, an NDA is a natural step in the collaboration. However, this document should be studied with care, to make sure the company doesn’t impose boundaries that will keep you away from other projects in the same niche.
As you can see, freelancers and independent contractors are not very different as they are the ones actually doing the job. So, regardless of the type of contract you sign, it must contain the following:
- A detailed description of the work included in the agreed rate
- The agreed rate and if it’s on an hourly basis or any other type
- Deadlines and expected outcomes
- Termination clauses (for both parties)
- The location where the work will be performed
- The possibility to extend the current contract (if the client wants more work)
- Any limitations that might prevent you to get other customers
- Other important details
Overall, the main purpose of a freelance services agreement is to remove ambiguity and doubt and avoid any confusion that may show up during the collaboration.
Consulting Services Agreements
Another type of contract most freelancers will have to deal with is the consulting services agreement. However, this is different from the first type of contract we discussed because a consultant doesn’t actually perform the work – they only offer their expertise and advice on how the work should be done.
So, as a consultant, you are not being paid to deliver the results, you just provide guidance on how the company can get the best results in the shortest timeframe with a cost-effective solution.
In addition, according to LegalZoom, such a contract should include specific clauses that correctly define the collaboration and the outcome. Also, as a consultant, you will have access to more sensitive information in your client’s company, which is why the NDA will be a lot more limiting. Furthermore, some contracts may prevent you from working with other customers that are in direct competition with your current one, so pay close attention to all the clauses.
Which Type of Contract is Best?
In the end, it’s important to specify that both independent contractors and consultants can (and usually do) work as freelancers who cover their own taxes and insurance. So, regardless of the document title, the main concern one should have is with protecting their interest.
In addition, if a contract is titled ‘consulting services agreement’ it doesn’t mean it is tailored to reflect this type of collaboration. As such, before you jump in the collaboration, it is crucial to read all the details and discuss any issues you may find with the possible customer.
Check if the possible client wants to micromanage your activity (which is a big red flag) and if they want to keep you under constant observation (via online trackers or by having you work at their headquarters). Moreover, be wary of NDAs and check if the customer is trying to protect their own intellectual property or limit your future collaborations in the niche.
Overall, the tile is not as crucial as the details in the document. This is why it’s crucial to make sure you understand every aspect and challenge any potential collaborator to a discussion to ensure they understand your role as a freelancer and not an employee.