(Art credit: Pedro Gomes)
Working as a freelancer is incredibly exciting. You don’t have a boss and you can control your own schedule. The more you work, the more you earn — no more unpaid overtime! Instead, you’re in control of your destiny.
Unfortunately, some pitfalls come with freelancing as well. It’s important to protect yourself legally as you get started, to avoid significant issues that can sink your business before it even gets going.
What steps can you take to prevent legal issues? Here are four to consider.
Always Use Contracts
Contracts are essential to protect yourself and your business as a freelancer. Your contract should include the following information:
● What’s included in the job
● The pay and payment schedule
● Expectations for both sides of the contract
Having the client sign a contract before you begin work ensures that if they don’t pay, you’ll have legal recourse against them. It’s a sad fact that many people online feel like they can take advantage of freelancers and get work with little or no payment. You can also protect yourself by requiring 50% of the payment upfront and the rest when the work is completed.
Beyond the contract, always watch for red flags for any job. For example, a job that’s too good to be true or pays far more than expected may be a scam. If you don’t know exactly who you’re working with, including the business name and a contact person, it’s a good idea to pass.
Don’t let money or fear of failure blind you to the warning signs of a scam. Keep your eyes open and make sure you work with the right kinds of clients!
Consider a Business Entity
Another important way to prevent legal issues is to form a business entity, like an LLC. This allows you to separate your business finances from your personal assets. If something happens and the business goes bankrupt, creditors won’t be able to pursue your personal money to settle debts.
This is also important in case your business is involved in a lawsuit. For example, let’s say you create a blog post that goes viral on social media, and the blog post has some criticism of a specific company. The company might sue you, saying your post had inaccurate information that damaged their reputation. Even if it’s not true, it takes a lot of money to defend yourself in court. If any damages are assessed, an LLC will help ensure it’s against your business and you will not lose your home, retirement, or other savings.
Understand Your Tax Obligations
Filing taxes as a freelancer is not the same as when you were an employee. You have to set more money aside and make sure that you track your business expenses so you can use them as write-offs to reduce your tax burden.
What are some of the expenses you can write off? Anything that is a normal cost of doing business counts. For example, you can write off a room in your home that’s used exclusively as an office, along with a percentage of your utilities. If you have an office outside the home, you can write off the rent and utilities for that office space. You can also write off expenses related to ongoing education in your industry, professional memberships, and more.
The fact that so many more people are freelancing is part of why the demand for accountants is growing. Working with an accountant can help you file your tax returns correctly and pay what you owe.
Protect Intellectual Property
If you’re a freelance writer or designer, it’s important to avoid using other people’s work as part of your projects unless you have permission or paid for the rights. At the same time, you need to protect your creative work from theft by others.
Intellectual property laws for freelancers can be confusing. There are several types of intellectual property, including copyright, trademarks, patents, and trade secrets. If you sign a non-disclosure agreement with a client and then share their processes with someone else, you’ll violate trade secrets property law. If someone takes your design and passes it off as their own, that’s a violation of your copyright.
While you may use a variety of other works as inspiration for your own, what you create has to be different enough that it’s clear you didn’t steal it. You can’t use something word-for-word without attribution or permission, and the same is true for graphics. To protect your work, be sure you understand how copyrights work and when you might need to purchase a trademark.
Keep Your Freelance Business Legally Safe
Being a freelancer can be lucrative and incredibly satisfying. However, to make your business successful, you need to protect yourself from common legal issues that freelancers face.
Using contracts, forming an LLC, staying up to date on taxes, and understanding intellectual property laws are all essential for new freelancers. The law will protect you if you understand how to use it. Make sure your business is protected so you can work freely and enjoy your freedom.