I wish someone told me these before I started freelancing full-time in 2019: then it would have been easier for me from the beginning. I researched everything I knew and asked questions about every rule that applied to me so that I didn’t make any expensive mistakes later. From my experience, there are 6 things you must have before you start freelancing.
But here I am today: to share every part of this freelancing journey so that new or existing freelancers can learn the legal essentials they need to set up for freelancing.
Like I said in this previous article, freelancing is considered a business or self-employment in most parts of the world, and there are certain things you must have or put in place for you to thrive and build a sustainable self-employed career.
Please note that this post will also apply to content creators, influencers, affiliate marketers, UGC creators, and anyone in the service industry who makes money working for themselves.
WE’LL DISCUSS:
- Getting a business license
- Craft a contract or service agreement
- Create an invoice
- Set up a dedicated bank account
- Plan for taxes
- Insurance
Take it this way: As long as you run your own business or provide a service in exchange for payment or compensation for your time and effort, you are considered self-employed or a freelancer.
Of course, there are legal obligations that come with transitioning to being a self-employed or a freelancer, but these 6 legal essentials will ensure that you are operating smoothly and protect you from any potential legal issues.
Further reading: 12 Hard Truths I learnt about Freelancing
1. GET A BUSINESS LICENSE
Depending on where you live and the type of freelance or service you provide, you may need a business license or registration to operate legally. A business license or permit is a must-have before you start freelancing.
Because I live in France, it is stipulated by law that anyone going into business for themselves should have a business license or registration – a SIRET NUMBER. That is, register your business with URSSAF (the government body responsible for collecting social contributions), INSEE, and any other government agency that oversees your business activity (I will talk more about this in a later topic). These days, the French law requires freelancers, independent contractors, or self-employed business owners to register their business and fictitious name alongside their name.
Why do you need a business license? A business license allows you to legally provide services as a freelancer or self-employed, and helps you establish credibility with your clients. In some countries, operating without the proper license can lead to fines or legal penalties.
2. CRAFT A CONTRACT OR SERVICE AGREEMENT
Whether you like it or not, a freelance contract or service agreement is a legally binding agreement and is the core of any freelance or service-based relationship. Having a contract or signed agreement is a must-have before you start freelancing.
A contract defines the terms of your work, including payments, deadlines, project scope, and any other important details necessary to carry out the project.
When signed by the two parties involved (the freelancer or creator and the client), a contract can be presented in court to settle and protect you from any disputes or misunderstandings.
Aside this, a well-drafted contract or service agreement should highlight:
- IP agreements
- NDAs,
- Non-compete
- Data Protection
- and any important info that both parties wish to protect.
However, each contract or service agreement differs by the scope of activity. A UGC content creator should not have the same scope of contract as a freelance software developer. A contract for a content or UGC creator should contain certain clauses like perpetuity, usage rights, intellectual property, etc., while a freelance contract should contain the scope of work, force majeure clause, etc.
I once met a makeup artist who provides a service agreement to her clients before accepting a gig. That’s how important it is!
When drafting a contract, include the work outline, payment schedule and methods, terms for data protection, and any details for additional work. You may not need to hire a lawyer to create a contract or do it yourself.
Ensure your contract is thorough, clearly drafted, and signed by both parties before starting the project.
Further reading: Freelancing Tips From My Experience
3. CREATE AN INVOICE
As simple as it sounds, an invoice informs the client the monetary value of your services, how you get paid, your payment deadline, and any necessary information. This is crucial for every freelancer or service-based provider.
As a freelancer, independent contractor, or self-employed professional, you must send an invoice to your clients before, during, or after completing your work, depending on the payment terms in your contract.
It does not have to be fancy or software automated, like Zoho or Wave (you can automate your processes later on in your business), but your invoice should contain these eight key information:
- your business name and information
- your client business name and information
- date the invoice is issued
- payment deadline
- description of the services you offered
- your accumulated rate
- payment method and any important info relevant to the invoice. You should also follow up on unpaid invoices and send reminders to clients who are late with their payments.
A good invoice should be easy to understand, keep you organized, and make you look professional to your clients. This is an essential must-have for freelancing.
4. SET UP A DEDICATED BANK ACCOUNT
Now that you have set up your freelance business, you should set up a dedicated business bank account. A dedicated bank account (not your personal account) is a must-have for you to start freelancing.
A dedicated business account helps to keep your personal and business finances separate and also makes it easier to manage your income, track your expenses, handle your taxes, and account for the profitability of your business.
Depending on the laws of your country, certain personal expenses should not be made through your business account. And as your business grows, you can also pay yourself from your business.
Having a dedicated bank account also makes you look more professional to clients, especially when invoicing and receiving payments. As your business grows, a dedicated bank account can be handy for legal reasons.
Further reading: How To Create A One-Page Website – Free, No Code
5. PLAN FOR TAXES
While you organize your invoices and collect your payments, you must declare your business turnover at the end of the fiscal year – which may vary depending on your region.
A freelancer, creator, or independent contractor is responsible for handling their own taxes. Unlike a traditional employment where taxes are deducted from your salary, you must calculate and pay taxes on your revenue.
Your tax range could differ depending on your country of residence and the nature or stature of your business. But typically, freelancers are usually taxed about 18% – 27% of their monthly turnover.
So, from my experience, ensure that you keep track of all your earnings and business expenses throughout the year so that it will be easier to file your taxes correctly and calculate your returns.
6. INSURANCE
Insurance is a must-have before you start freelancing, and most creators or freelancers tend to overlook this. Most because we think we do not need it (I thought the same thing too). Not only does insurance protect you personally, but can also cover and insure the liability of your business.
If you’re looking to transition to freelance or self-employment, you need an insurance. A health insurance for you and a business insurance, depending on the legal status and liability of your business.
So, depending on your service, you may need liability insurance to protect you in cases of Intellectual Property theft or a breach of Usage Rights (for content creators). For your health, planning for your health insurance is also important since you do not have employer-provided coverage.
My advice is to talk to an accountant or a business lawyer. Find out what type of insurance or policy is available and necessary for you and your business before launching.
CONCLUSION
There is no perfect order on what you must set up before you start freelancing but having these are crucial if you want to be self-employed. It not only protects you but also helps you build a credible business.
As much as freelancing gives you the freedom to run your own business, it allows you to handle the legal and administrative aspects on your own.
For long term success in freelancing, it is important to put these in place before you start freelancing.:
- getting a business license
- using contracts
- setting up proper invoicing
- having a separate bank account
- planning your taxes
- and securing insurance
This blog post just gave me a thought to share my honest experiences as a freelancer living in France. But first, if this is something that interests you, I am ready to put pen and paper together.
I would love to hear your thoughts in the comments!
Toodaloo!
