For his latest Business Advice article, Grid Law founder David Walker explains everything an employer must consider when hiring a freelancer or a contractor for their company, from contracts to intellectual property.
You’ve decided to embrace the gig economy and grow your business by taking on freelancers, rather than employees. In many ways, you probably won’t notice much difference between the two.
The big difference comes when you hire them and fire them.
When you hire a freelancer, you’re not governed by all the rules and regulations you have when employing someone. This is very attractive for many business owners.
You don’t have to pay them when they’re off sick, you don’t have to give them holidays and you only pay them for what they do. I talked about this in more detail my previous article – A small business guide to hiring freelancers and embracing the gig economy.
However, this doesn’t mean you can treat them how you wish. There’s still a contractual relationship between you and the freelancer and you must both stick to its terms. If you don’t, you risk legal action and a claim for compensation from them. I’ll cover how to fire a freelancer legally in my next article.
So, how do you form a contract between you and the freelancer, and what should you include in it?
When forming a contract, there are basically three options:
First, the terms of the contract may be set by the platform you use. For example, if you find a freelancer through Fiverr or Upwork, you hire them subject to their standard terms and conditions. These terms are nice and fair and cover all of the important points you need to consider.
However, they are standard and are designed to suit the majority of situations. Therefore, if you have some specific issues you need to cover, they may not be suitable for you.
Next, if you don’t find the freelancer through one of the online platforms, you will need to set the terms for hiring them. If you regularly hire freelancers, you could use your own standard terms that they all sign up to.
Alternatively, if you only use freelancers occasionally, you could prepare a bespoke contract each time you need it. For very simple jobs, a handshake may be sufficient, but there are risks with this. For more information about handshake deals, please see my previous article – Does a handshake form a legally binding contract?
The final option is for the freelancer to set the terms. This is rarer and tends to be for more specialised services.
For example, as a solicitor there are certain provisions I’m legally obliged to include in my contract with clients. I wouldn’t expect my clients to know about these, so we always enter into contracts on my standard terms.
Whoever sets the terms, you must remember that this is a relationship between you, so you must be clear about what you’re both aiming to achieve. There are a huge number of issues you could consider, but if you cover the following five key points, you won’t go far wrong.
What do you want the freelancer to do and when are they going to do it?
You need to be clear about what you want the freelancer to do, in terms of the final objective. However, you will probably leave them to do the work in their own way and they may even do it in their own time.
This is one of the main differences between freelancers and employees. Freelancers are given far more freedom about how they achieve the end result, whereas employees tend to receive more guidance about how they should go about their tasks.
If you need the freelancer to be available during specific working hours you need to be clear about this in your contract.
How much are you going to pay them, and when?
You have many different options here. You could pay them a fixed hourly or daily rate, or a fixed fee for completing the task. Alternatively, their fee could be wholly or partially performance related, for example they may receive a commission or percentage of any sales or savings they make.
Some businesses will pay the full amount on completion of the task and some will pay in instalments as it progresses. You also need to decide whether you’re going to pay any expenses the freelancer incurs.
Some freelancer may be VAT registered. If you’re also VAT registered this isn’t an issue but if they are and you’re not, then this could make them an expensive option for you.
Who will own any intellectual property rights they create?
If you hire an employee, any intellectual property they create in the course of their employment is automatically owned by you.
This isn’t the case with freelancers. They will own everything they create unless it’s specifically assigned to you. Therefore, if you want to own the intellectual property, you must specify this in your contract, but make sure the contract is in writing.
This is essential if you want the contract to be legally binding. If you do a handshake deal, you won’t own the intellectual property they create, even if they say you do.
Will the freelancer have access to any confidential information about your business?
Depending what the freelancer does for you, they may have access to your confidential information, trade secrets or simply the business methods which give you a competitive advantage.
To protect your business, you will need the freelancer to keep them a secret. Again, for employees this happens automatically, but not for freelancers.
You need to make it absolutely clear in their contract what information is confidential and that they must not share it with anyone.
Do you need to place any restrictions on working with competitors?
Most business owners won’t want freelancers being able to freely switch between working for them and their fiercest competitors.
It’s therefore completely normal to place restrictions on what they can do while working for you and for those restrictions to stay in place even after their appointment ends.
However, you need to be careful. These restrictions must be reasonable and only go as far as is necessary to protect your legitimate business interests.
If your contract is too restrictive and goes too far, it could be unenforceable and then you would have no restrictions to control where else the freelancer can work.
These are the key points that you should consider when hiring a freelancer, but there are many other points that you may wish to consider. So, if you have any questions about hiring a freelancer or how the gig economy can benefit your business, email me at email@example.com.
Don’t miss these six valuable hiring tips for startups and small businesses
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