Whether it’s your first time hiring freelancers or you’ve worked with dozens before, one thing is true: you need to use contracts.
Even if you just need a designer to create one quick banner, or you know that developer personally, or this business consultant has the best reputation in town — write a contract. Every. Single. Time.
Not only do contracts help clarify standards and expectations for both parties, but they also keep you protected in the event of a dispute down the line.
So, where should you start?
In this post, we’ll cover how to write a freelance contract, why it’s important, and other legal documents you should be using.
What is a freelance contract?
A freelance contract is a legally binding agreement that includes all of the terms and agreements of the work arrangement with an independent contractor.
For companies: Contracts protect companies by providing a guarantee that the freelancer will deliver the work according to the agreed upon timelines and specifications. If the company has any policies relevant to the arrangement that must be upheld (including use of equipment, training, protection, or additional compensation), they can specify that in the contract as well.
For freelancers: At the same time, contracts protect non-payroll workers by providing a guarantee that the company will pay them according to their rates, requested currency, preferred payment method, and designated time frame. It also provides an opportunity for freelancers to clarify their expectations for the scope of work, the approvals process, deadlines, and ownership rights.
What are the benefits of drafting a freelance contract?
There are four important benefits of signing contracts with all of your freelancers that help you avoid conflicts and reap the most value from their talents.
- Avoid misunderstandings. The act of clearly articulating both parties’ expectations and requirements helps everyone involved understand exactly what the work engagement should entail. With this understanding, you can avoid unpleasant misunderstandings that can jeopardize the work relationship, such as who is responsible for covering expenses or how flexible deadlines are. A clearly written contract eliminates the chances of ambiguity and misunderstanding.
- Gain legal protection. An agreement that is signed by two parties is a legally binding document, which means it can be used in court should one party breach its terms. This helps ensure you are covered in the event that the freelancer doesn’t deliver the work. It also ensures that you pay the freelancer for their service.
- Show that you work “by the book.” Not only do contracts help you build more successful work relationships with independent contractors, but they also show external stakeholders (like investors) that you are doing everything legally and in an orderly manner. Should you undergo a due diligence audit, you can expect that all of your freelance contracts will be reviewed.
- Stay in compliance with labor laws. In many US states and countries, it is illegal to work with a freelancer without signing a contract. Some laws, such as New York’s Freelancing isn’t Free Act of 2016 or the Philippines’s freelance protection law , were enacted to protect freelancers from withheld payments and exploitation.
So, how to write a freelance contract?
In order to achieve all of these benefits, you need to know how to write a freelance contract. For that, you need to know what should go inside. Here are the 12 components of the freelance contract anatomy.
- Contact details for the freelancer and client. This includes the full names, phone numbers, and email addresses for both parties. Additional information like the freelancer’s EIN or business number and the company’s mailing address are also usually included.
- Project scope. Here, you should describe the work you are hiring the freelancer to do. You’ll want to cover the purpose of the project, the length of time it will take, and the number of hours the freelancer is expected to work. You may also outline expectations for communication, what the feedback process will look like, and who in the company will be involved in approvals and signing off on work.
- Equipment and expenses. Freelancers who are hired to do certain types of work may need to purchase specific tools, software, equipment, or training. In the contract, you should spell out who is responsible for bearing those costs — your company or the freelancer.
- Deliverables. Clarify exactly what the freelancer is expected to complete or produce.
- Pricing and rates. In this section, you will specify how much the freelancer will be paid, and if they charge a fixed cost, hourly rate, a retainer, or another type of payment arrangement.
- Payment schedule and options. Here, you will define the payment method, timeline, and currency for paying the freelancer.
- Deadlines and timeline. In many cases, it’s difficult to plan exact deadlines in advance. However, it’s still a good idea to include in the contract when the work relationship begins and when you expect the work to be done. You may also want to note whether or not deadlines are flexible, and if there are any repercussions for missing them.
- Ownership/copyright. This clause clarifies who actually owns the work after the freelancer completes it. In most cases, the freelancer retains the rights to the work until you pay them for it. Once the freelancer receives the payment, he or she cannot use or resell the work to anyone else.
- Legal terms. Define important legal terms and concepts to ensure both the freelancer and hiring manager understands their legal obligations.
- Early termination and kill fee. In this section, you should outline terms and agreements in the event you need to cancel the project before it is finished. For example, you should cover how you will compensate the freelancer for the work they did so far, in what form they should deliver what they completed, and whether or not the work engagement is formally ending.
- Dispute reconciliation. Here, you should add a jurisdiction or arbitration clause that defines what legal action will be taken in the event that either side claims there was a breach of the contract. This is especially important if you are working with freelancers who are based in other states or countries, where dealing with the legal process may be more complex and expensive.
- Signatures. Both parties must sign the contract in order for it to become a binding legal document. In other words, the contract is only valid if both parties sign.
General contracts aren’t enough
When first learning how to write a freelance contract, you may think the agreement is comprehensive enough to secure you and the freelancer in the work engagement. However, that’s usually not the case.
As the hiring company, you (and your legal/security teams) will want the opportunity to elaborate further on policies, rules, and obligations related to security, compliance, and intellectual property. For that, you need both parties to sign the following legal documents:
- Non-disclosure agreement: An NDA (also referred to as a confidentiality agreement), is a legally binding contract that establishes a confidential relationship between your company and the freelancer. By signing an NDA, the freelancer is legally forbidden from sharing any sensitive information they may obtain with individuals outside of your company.
- Intellectual property (IP) agreement: An IP agreement establishes the transfer of intellectual property rights from one party to another. When hiring freelancers, the most common reason for an IP agreement is for the company to gain the IP rights of the work from the freelancer.
- Non-compete agreement: This agreement is a contract in which the worker agrees not to work with other companies that are considered competitors of the hiring company for a specified period of time after the work relationship ends. Non-compete agreements also prohibit the worker from revealing proprietary information or company secrets to anyone outside of the hiring company.
- Data protection agreement: Often, a freelancer will need access to sensitive company data in order to complete their work. In this case, you will want them to sign an agreement that compels them to comply with your company’s data secrecy and security policies.
Don’t overlook contract archiving
There’s one more important part of freelance contracts we need to cover before we go — archiving.
Unless all of the necessary stakeholders can easily access and review the signed contracts, it will be difficult to enforce them.
Today, many companies continue to rely on outdated methods of archiving contracts, such as with emails and Excel spreadsheets. One of the main issues with this approach is lack of organization.
For example, only email recipients have access to contracts and information that are shared back and forth. And, as time goes by, digging through old email chains to locate information can be a pain. Excel spreadsheets offer marginally better organization, but fail to centralize access, and require manual updating.
Fortunately, there are solutions available that make contract archiving and managing simple. A freelance management system (FMS) is designed to make sure both parties sign freelance contracts promptly and keeps them centralized and accessible to all relevant stakeholders.
Do you have more tips for writing freelance contracts and getting the most out of your non-payroll workforce? Leave us a comment below!