Freelancing 101 – VII

By Doreen Martel

One of the challenges that may be faced by freelancers is the decision about long term and short term contracts. There are a couple of things that need to be taken into consideration when you are faced with each type of contract. Here are a couple of the decisions that you will need to make and how they can be impacted depending on the length of the contract.

Short Term Contracts

There is little doubt that short term contracts have their place. In fact, many freelancers find that these types of projects turn into their bread and butter. The problem of course is that these types of contracts come and go and may last one day, one week or one month and then it will be on to the next project. For the freelancer, this means starting all over again and looking for the next project. This results in downtime (read no payments coming in), searching for new gigs (read time invested) and stepped up marketing efforts. This means that most short term contracts should (and most do not) pay better than longer term contracts. When you are asked to take on a short term project there are some specific questions you should ask when you are bidding:

A) How long will the project last – Even if you cannot get a firm answer, you should be able to get some type of an idea of how long a project will take. An example – if you are asked to write content for a single website, it’s clearly not going to take you three or four months, in reality, it will be less than few days.

B) Are there follow up projects – Some projects can lead to additional work. This is especially true if you land a gig with a client who has additional clients to whom they are providing material. If you ask about it up front, you may be able to secure the additional projects (assuming of course that you provide high quality work).

C) Possibility of future work – Even if a client does not have other immediate work available, find out if they have future work available. This could help you better prepare your schedule also.

Negotiating Short Term Contracts

When negotiating short term contracts you should have a plan in mind to find your next gig. Remember, you have to be able to live, but at the same time you do not want to overcharge a client and potentially risk future work. Estimate the number of hours that you will require to complete the project, estimate the number of hours (within reason) it will take you to land a new gig and bid accordingly.

Long Term Contracts – Good and Bad

Long term contracts are preferable to many freelancers. However, there are a number of considerations that must be weighed before you accept them. One of these of course is the challenge presented by the Internal Revenue Service and how they classify contractors (freelancers). Section 530 of the Revenue Act of 1978 states

“The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”

Remember, if the client is telling you HOW the work must be accomplished, you can be classified as an employee. The other predicament is this:

Permanency of the Relationship

If you hire a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.

Use great caution in how your long term assignments are classified as you could wind up being classified as an employee according to the IRS. Check your state regulations as well as some states (California comes to mind) state that if you exceed a certain number of hours in a month (or a year) you may be classified as an employee.

The other downside

In addition to the downside of potential IRS issues and classifications, there is another issue with potential long term contracts with clients. That is when we depend on that income dwindles with the clients business. Perhaps they have a family member, a friends newly graduated child or other factors which result in your workload being decreased. Remember, your clients are free to release you from work at any time! Do not get so wrapped up in that one (or two) clients work that you have failed to prepare in the event that you lose the client or lose time.

Negotiations and long term clients

As a rule of thumb since long term clients can provide long term income, you may want to take this into consideration when you are negotiating your contract. In general, it is probably a good idea to revisit the contract quarterly to ensure everyone is on the same page. Many freelancers elect to offer long term clients a reduced rate in return for guaranteed income on a monthly or quarterly basis. Just use caution that you do not cross over the IRS regulations lines.

Summary

There are good and bad points to both long and short term contracts with clients. Before you take on a new gig, make sure that you understand fully what you are getting yourself into and make sure you follow IRS guidelines plus any guidelines that may be specific to your state.