Freelance and independent contractor gigs have experienced a steady rise in the past years. People across generations opt for this type of work because it gives them flexibility and freedom to work whenever they want. They can choose to travel, spend more time with their family or simply save valuable time on commuting. Although the benefits are numerous, it's not always that easy to freelance full time.
You need to take into a lot of things to set yourself up for success. This article aims to provide you with a few vital aspects of contractual work that will ensure both safety and compliance.
Always have a contract
Before you take on a project, make sure you have a legally binding contract. Moreover, make sure the contract is compliant with your local labor laws. This is important because it keeps you protected and ensures you get paid for the work you do.
More often than not, freelancers experience unpleasant situations when their payments are delayed or their clients simply choose not to pay them. You can use the contract as a way to vet your clients- if they are reluctant to sign it, it might be better to pass on the deal.
Do thorough research or even have a lawyer help you create a standard contract you can use in the future. Don't just take a template contract off the internet because each country has their own regulations. On top of that, consider including IP and/or NDA to add another level of security. It might be a bit of an investment, but you know what they say- better safe than sorry!
Keep your paperwork spotless
Accounting, to a certain extent, is important when it comes to a working relationship between a client and a freelancer. Both parties should have invoices that match the money that is being transferred and the work should be clearly outlined. The workflow is usually the same: the contractor is responsible to send an invoice when the work is done so the client can process the payment. It would be ideal if you already agreed on the payment deadline, so the expectations are met. This piece of information can also be included in the contract.
Sometimes, the freelancer needs to confirm the amount they received by sending back a receipt. This might sound like tedious work, but it's necessary to keep the books clean. You can consider setting up an invoicing process to save time or even invest in an invoicing tool.
Stay risk-free with the right tax documentation (for US clients and freelancers)
Each country has its own labor laws and tax regulations, so you need to investigate that to be safe. In the US, there is a form called 1099-MISC (or just 1099) that is used for any contractor or a freelancer who earned more than $600. The client needs to send this form to both their contractors and the IRS.
If an independent contractor/freelancer owes more than $1,000 to the IRS for the current tax year, they also need to submit quarterly tax payments. In that case, the independent contractor/freelancer needs to estimate their tax liability based on the most recent quarter and use a 1040-ES form to make payments.
When US businesses are working with foreign contractors or entities, they need to issue the forms called W-8BEN or W8BEN-E. They help establish that someone is a foreign individual (or an entity) and that the work is not being performed from within the US. The W8-BEN form is filed when the contractor is acting as an individual, whereas the W8BEN-E is used when the contractor has their own business.
There are a few other important dates US freelancers need to keep in mind.
Contractor taxes- Who is responsible for it?
It's worth double-checking which party- you or the client, is responsible to cover your taxes. The independent contractor/freelancer is almost always responsible for covering their taxes, especially if they are based in a different country. Sometimes, a US company needs to withhold a percentage to cover the taxes on their behalf. The withholding rate depends on whether the US has a tax treaty with a foreign country and where the work is being performed. If they do, there might be no withholding at all. Make sure you align on this with your client, so you avoid causing risks and penalties.
Automate what you can and save time
There are many things a freelancer needs to keep in mind to stay risk-free and compliant. We have mentioned some of the things that need to be taken into account, and it might sound like a lot. Luckily, there is a way to automate at least a portion of it.
Deel can help you and your clients with paperwork, compliance and payments. Deel's contracts are labor law compliant and ensure safety for both parties. Your clients will receive invoices and can process payment methods that are the most convenient for them. Once the payment is processed, a freelancer can withdraw money in their own preferred method and the client gets a receipt afterward. On top of that, if you are in the US, Deel can generate tax forms such as 1099, W8, and W8-BEN(E).
Does this sound like a good way to save time? Reach out them and find out how you can make your freelancing "headaches" go away so you can focus on your best work.