3 Legal Precautions in Hiring Freelancers While those who work project by project are integral part of the U.S. workforce, a startup needs to take measures of protection.
By Jaia Thomas Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Free • lanc • er: A person who sells services to employers without a long-term commitment to any of them. --American Heritage Dictionary
From marketing to graphic design, entrepreneurs rely heavily on freelancers to fill many of their business needs.
Currently 1 in 3 Americans who are working (roughly 42 million) are estimated to be freelancers and within the next six years freelancers are expected to comprise more than half the full-time workforce. With entrepreneurs relying more and more on freelancers, it is imperative to know the key legal precautions to take before taking a freelancer on board:
Related: Employee or Contractor? Here's a Cheat Sheet on Classification. (Infographic)
1. Get the agreement in writing. Be sure to put the details of your freelance arrangement in writing. I can't count the number of times an entrepreneur contacted me and sought my help after a relationship with a freelancer deteriorated. The first question I always ask is to see a copy of the contract.
The facial expression I usually receive after asking that question would lead someone to believe I asked the question in Azerbaijani. Far too often entrepreneurs fail to formalize the terms of their arrangement with a freelancer. Perhaps they are under tight time constraints or worry that having a contract professionally drafted would be costly.
Whatever the reason that stood in the way of drafting a contract in the past, don't let it prevent the creation of one now. If time and finances are issues, find a piece of paper, jot down a few key clauses and have both parties sign.
It doesn't matter whether a contract is written with a luxurious pen or Crayola crayon. Just be sure to put it in writing so no misunderstandings arise once the freelancer begins the project. A contract will also prove instrumental should litigation arise. For good measure, consider keeping short, concise boilerplate contracts on hand that can be slightly modified for every new freelance assignment.
Related: Want to Start a Business Fresh Out of College? Try Freelancing First.
2. Specify that the projects are works made for hire. According to the U.S. Copyright Office, the general rule is that a person who creates a work is often the legal author and owner. The copyright office provides an exception to that standard rule, however. The exception is for a "work made or hire," project prepared by a worker when the assignment is specially ordered or commissioned in certain specified circumstances. When a project qualifies as a work made for hire, the employer or commissioning party is considered to be the legal author and owner.
A key clause to include in a contract with a freelancer is one indicating that anything the freelancer creates will qualify as a work made for hire. When hiring a freelance designer to create a logo for a new company, a work made for hire clause will ensure that the organization owns all legal rights to the logo. Although freelancers are integral to the creation and upkeep of a business, ensure that they don't walk away owning any key pieces to the company's puzzle (regardless of whether they created them).
3. Be careful in setting up payment. Many freelancers approach their assignments with payment requirements. Some require being paid by cashier's check. Others wish to receive a company check. Still others want the entire amount paid up front though a delayed payment satisfies some people. Never render an entire payment up front. There's the risk that the freelancer will accept the payment and never fully complete the project.
Or the entire payment might be rendered only for the relationship to go awry. When possible, try to bifurcate payments. Alternatively, if the entire payment must be furnished up front, be sure to have something in writing so that the company can recoup a portion if the relationship is prematurely terminated before the work is completed.
Related: The IRS Wants to Know If Your Freelancer Should Be Getting a W2
