Freelancing and self employment are incredible ways to find purpose and fulfillment. The joys reaped from cultivating your own business are innumerable, and I think a great majority of self employed people would say that these joys far outweigh the struggles they might face.
But let’s be clear, your business’ future — your livelihood — depends on recognizing these struggles, and recognizing how self employment is, in almost every way, far different than traditional employment. And the biggest differences stem from your wage, how you get paid, and the legal resources at your disposal.
These differences, however, just mean that it’s up to you to create your own legal and financial protections in order to continue enjoying all the benefits freelancers do have. This article will tell you how.
You might also like: 7 Tactics for Handling Late and Non-Payment.
Self employed or just exploited?
Off the top of my head, I could probably name 50 reasons why being a freelancer, and being self-employed are a dream come true. I can work from wherever I want, whenever I want. I don’t report to anyone. Sure, I have clients. But I don’t report to them, I work alongside them to produce something specific. I have every right to dictate how that task is accomplished, and I can speak candidly about whether or not I think an idea is good or bad.
In previous employment situations, I used to get in trouble for offering my input. Today, I’m thanked for it. For these reasons alone, barring any extremely unusual circumstances, or a once-in-a-lifetime opportunity, I can’t really see myself ever going back to the nine-to-five.
But with these benefits comes a cost, and freelancers everywhere have to understand what those costs are.
Traditionally employed individuals in the US are protected by a series of basic labor laws that were enacted over the course of the 20th century. These laws provide an array of protections that include: a safe work environment, compensation for injuries occurring on the job, reasonable working hours, a minimum wage, overtime pay for nonexempt employees, family and medical leave, the right to unionization and collective bargaining, freedom from harassment, and unemployment insurance if you’re laid off or lose your job for a reason outside of your control.
Freelancers in The Creative Class may live for the love of their labor, but there is limited evidence that their labor loves them back. The list of protections that the self-employed don’t receive is long, and the law is clear: when you’re a freelancer, the onus is on you. As you carry out your business, it’s vitally important that you recognize this and put your own protections in place ahead of time, lest you open the door for rampant exploitation.
Wages and wage theft
As you are undoubtedly aware, freelancers are not subject to minimum wage laws. Any brief foray into the world of online freelance exchanges, makes this point clear as day: the globalized freelancer marketplace has created a race to the bottom for contractors. And even when a client and freelancer have come to an agreement on a reasonable project fee, the threat of wage theft is real and permeating.
According to the Freelancer’s Union NonPayment Fact Sheet, freelancers in 2014 lost an average of $5,968 each in unpaid project fees. You can read the full report here. To some, this might just sound like the cost of doing business, but it’s up to you to decide whether a single independent individual, working project-to-project, is really on the same playing field as a large corporation. And in a wage dispute, the burden of proof is going to fall on you.
Of course, to help combat this you should be writing contracts and keeping written documentation. This creates a structure between you and your client that can be the basis for winning a case in any type of potential wage dispute. Contracts also make sure that you both are on the same page, and legitimize the work you’re doing in the eyes of your client.
The simple act of agreeing to the terms of a contract ahead of time, can drastically reduce the likelihood of disputes or difficulties in the future. Documentation also gives you a reference point that you can turn to if a client tries to back away from an agreement. You can quite literally point to a piece of paper, and remind them of what they agreed to and when.
Contracts, especially ones written by you, also help guarantee some of the rights and protections you do have as a freelancer. You have every right to work where and when you want, without interference, so long as you adhere to any stated deadlines and produce the appropriate deliverables.
But even so, some companies might try to govern contractors by placing limits or guidelines on how and when they work. To be clear, this is against the law. By outlining these types of things in a contract, you can protect yourself from an exploitative work environment that has all the baggage of a nine-to-five, but none of its perks.
Benefits and balance sheets
One of the biggest differences you might notice between being traditionally employed and self employed is the lack of a biweekly paycheck, and a lack of benefits. This can be the most difficult to adjust to, and ultimately a cash flow problem or a lack of financial security is a primary reason that a lot of freelancers give up.
Obviously lead generation is going to be the best tool in your toolbox for combating cash flow problems, but the next trick up your sleeve is going to be taking deposits. For example, I take a deposit for any project valued at more than $500. This deposit amount ranges from client to client — but my rule of thumb is that for big projects worth several thousand, I’ll take a 50 per cent deposit, and smaller projects I’ll usually take 30 per cent.
Requiring a deposit serves a few purposes. Firstly, it keeps cash coming in at more frequent intervals. Secondly, it helps you vet a client. It’s common practice to not begin a project until the deposit clears, so if they never pony up the money, you haven’t lost anything and you’ve dodged a serious bullet. And if you get the deposit and they flake on the final payment, you’ll still get something for your time.
Also, proper financial management and planning can help keep you in the driver's seat of your career. The idea that freelancers can choose their clients and choose their work according to their ideals, moods, and passions isn’t remotely accurate when you’ve got no other choice.
The right to consent to work is contingent on financial solvency; a broke freelancer is a desperate freelancer.
And while the age old advice of not accepting low paid work is solid advice, it doesn’t apply to those who have no other work on the table. This can be a tricky cycle to break, so it’s important to employ your own strategies for financial management and future planning to keep the ball in your court.
This means having an emergency fund, keeping a buffer in your checking account, having enough liquid savings to cover several months of expenses, and saving for retirement.
Having a plan in place to handle personal situations like bringing a child into your life, caring for a sick parent, or battling an illness is also necessary. Passive and recurring income is an extremely effective tool in these types of situations, and without traditional benefits or legal protections, a previously established way to keep money coming in on a regular basis is vital.
Casual unionization
A labor union is an organized association of workers often in a trade or profession, formed to protect and further their rights and interests. But when the law considers a freelancer a business, and not a worker, where does this leave us?
It leaves us in a place of precariousness — a state that we can either climb from or succumb to, depending on how we operate our businesses, and how we function within our networks.
Freelancers, especially new ones, floating adrift in an ambiguous and uncertain marketplace, often have no idea how to price their work, what constitutes a fair rate, and what the top level freelancers in their niche are charging. Worse yet, freelancers have no expectation of establishing industry standard prices. And providers in the marketplace are too diverse and physically isolated for far reaching comparisons to be made. This wisdom comes only with experience and only with other freelancing friends in your corner.
Enter what I call “casual unionization.” By forming collectives and networks of other freelancers operating in similar or tangential niches, you can manufacture the type of support and assistance that a union might offer.
Firstly, you open yourself to treasure troves of data you didn’t previously have access to. It should be your priority to openly and frankly discuss your pricing structure, your contracts, and your rates with other freelancers in your network. This not only benefits you as an individual, but helps support the market in general, ensuring that more people are charging reasonable rates and keeping client expectations in tune with reality. A rising tide lifts all boats.
Within your network, you can also share referrals for both clients and services you might need: lawyers, accountants, etc. Knowing where to find trusted professionals providing these services in a moment’s notice can make or break you. Not to mention, having a close network of freelancers is one of the best ways to find leads. You and those in your network provide a safety net for one another, a place to send clients when you’re too busy, or a place to find them when times are slow. Freelancers often subcontract out extra work, and being available to give and receive this type of work helps everyone.
Conclusion
Freelancing is not for the faint of heart, but for many of us the benefits far outweigh the risk. By acknowledging the ways freelancers are uniquely vulnerable to issues like wage theft, cash flow problems, and lack of benefits, you can begin to build your own safety nets.
These safety nets can range from writing contracts and keeping excellent documentation, to taking deposits and generating recurring/passive income. And establishing relationships with other freelancers, casual unionization, can keep you informed of the going rates and new work opportunities, and help prevent feelings of isolation.
Ultimately, it’s up to you to protect yourself but with some proper planning, you can safely enjoy all the benefits of freelancing, without having to worry about getting taken for a ride.
