As a freelance professional, getting paid on time can be the difference between surviving for another month and financial disaster. For many freelancers, chasing down current clients for money takes up more time than finding new ones.
This issue, known as wage theft, is a widespread problem. According to a recent survey, 77% of freelancers have had some issues getting paid in the past year and the average amount of unpaid fees to freelancers is over $6,000. While there is no magic bullet to guarantee payment, there are things you can do before and after the gig to get more of the money you earned.
Make It Clear in the Contract
Freelancers have to wear many hats to keep their business going. At times, administrative tasks are done in a stripped down fashion or ignored altogether to maximize time and resources. In the past, formal comprehensive contracts were often a casualty of this process. That was a mistake if you wanted to get paid. Fortunately, the rules of the game have changed in favor of freelancers.
While negotiating a contract can be stressful, time consuming, and might result in lost business, not having a contract can be more detrimental in the long term. Without a written agreement, the terms of your engagement are based on vague and biased recollection. Without clear payment terms, you could be at the mercy and cash flow of your clients. Without an actual contract, your legal remedies could be limited. All these factors were taken into account when New York Local Law 140 (more commonly known as the Freelance Isn’t Free Law) went into effect in May of 2017.
The new law now makes it mandatory for companies who use freelancers for jobs of more than $800 to have written contracts for their work. Those contracts have to state how much the freelancer is getting paid and when. The law also has provisions for what happens when clients don’t pay and gives freelancers new weapons for recovering their money.
Freelancing Isn’t Free
The main goal of Local Law 140 is to provide a mechanism for freelancers to use the city and the courts to fight against wage theft. In the event a client doesn’t pay a freelancer within 30 days of the completion of work, the freelancer can initiate a specific legal action with the Office of Labor Policy and Standards against the client, or pursue their claim in small claims court. If the freelancer wins in court, there are several penalties the client will have to pay including:
- Double Damages: meaning the client will owe the freelancer double what they were supposed to pay in the first place Attorney fees: meaning the client will have to pay for the freelancer’s attorney
- No contract fee: meaning clients can face a $250 penalty if they refuse to work with a contract
- Civil penalties: meaning clients with multiple judgements against them may also be subject to civil penalties up to $25,000.
To put this in actual numbers, consider the following example. Amy the freelancer agrees to do some B2B marketing work for Bob’s Bricks. They agree on a $5,000 fee via email, but Bob doesn’t want to use a contract and when the work is over, Bob doesn’t pay. Amy has to spend $2,000 filing a complaint against Bob. If Bob loses, he’ll have to pay $10,000 for the double damages, $2,000 for Amy’s attorney and $250 for not having a contract for a total of $12,250.
While Local Law 140 does give freelancers more leverage with their clients, they’ll still need attorneys to help them in court and recover their money. Freelancers Union has set up a special app in support of this law and has created tips on how to hire an attorney to deal with wage theft or any other issue you have in your business.
The Maze of Collections
Once you have a judgement in your favor, you still need to collect your money. It’s unlikely that the client will just show up at court with a bag full of cash, so you need to be prepared to enforce your judgement. At this stage you have two options:
- Pursue your claim through the courts to go after their bank accounts, property and other assets to recover your money
- Hire a debt collection agency to go after the client for you.
Each method has its positive and negative aspects. If you go through the courts, it might take longer and require more attention you could be giving to your business, but you’ll get to keep more of the potential recovery. If you use a collection agency, you don’t have to do all the work, but you’ll never recover the full amount of what you’re owed because the agency will take their cut from the overall recovery.
It’s always better to work with clients who pay and have a clear contract up front to establish the payment relationship. But if you find yourself dealing with wage theft, there are more options and tools at your disposal to get paid and keep your business running.
Gamal is one of the founding members of the Freelancers Guild. His twenty year career has focused on artists and freelancers. His areas of expertise include contract drafting and analysis, copyright and trademark registration, corporate formation, and employment contracts. He’s done work for individual freelancers and companies as large as Marvel Entertainment.
PLEASE NOTE: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE AND DOES NOT ESTABLISH AN ATTORNEY CLIENT RELATIONSHIP WITHOUT THE EXISTENCE OF AN INDIVIDUAL ENGAGEMENT LETTER BETWEEN YOU AND C3