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Contracts: A Primer For Freelancers

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Editor’s Note: This is the second of two articles adapted from “Employment Contracts,” Chapter 14 of The High Achiever’s Guide to Wealth . Pick up your own copy here to read more on this topic and many others. In America, it is not standard for workers in most industries to sign binding employment contracts. But as more Americans pursue freelance work or independent contracting, they will need to comfortably navigate contracts and other formal work agreements. The COVID-19 pandemic seems to have accelerated an existing trend toward freelance work. In 2018, an estimated 20% of U.S. jobs consisted of independent contract and freelance positions. A survey from Upwork , a freelance job platform, set this figure as high as 36% in September 2020. Whether out of necessity or choice, many workers seem to be embracing self-directed positions. By its nature, freelance work means negotiating conditions with each client or employer. Freelancers who thrive thus build their skills in understanding, and sometimes creating, agreements that set the ground rules for a successful business arrangement. Such agreements define the scope of work, payment terms and other details. If your work is governed by a legally binding contract, evaluating the contract carefully before you sign is also a means of self-defense. Even if your freelance arrangement is something less formal, attentively reviewing the terms before you start work can save you major headaches later. Some freelancers use a “letter of agreement” (usually an email of agreement in practice). This is an informal written summary of the terms the freelancer and the client discussed. Others use a “statement of work” or “scope of work” agreement, which is more detailed than a letter of agreement but less formal than a full contract. Depending on the nature of your business, you may want to hire an attorney to help you create a formal contract template, which you can customize for each client. Or you may find one of these less-formal options sufficient for your needs. Considerations For Independent Contractors Independent contractors may sometimes take longer-term positions in which they work with a single client at a time. In these cases, the client may look more like an employer, though the contractor retains more independence than a traditional employee. For these workers, the first point of order is getting clear on the question of whether they are truly an independent contractor or if they should be treated as an employee. This question is not up to employer, or even worker, preference. The terms “independent contractor” and “employee” describe distinct ways of doing work on an employer or client’s behalf. Sometimes the distinction will be self-evident, but not always. Since 1978, the Internal Revenue Service has issued guidance to help employers make sure they are classifying their workers correctly. If you are a contractor, your contract should align with these legal requirements. The overarching principle is that an employer has a right to control when and how employees do their work, while contractors have the right to […]

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