Yay! I'm a contractor! Now what?

March 4, 2009 7:49 AM

I'm being asked to do a freelance project and I have no idea what I'm doing!

I was recently laid off like everyone else seems to be these days, and I still don't really have any solid job prospects.

A former colleague sent me an e-mail this morning asking if I would be willing to do a programming project on contract for him, with the possibility that they might have more upcoming work. I really need the money and told him I would be happy to. I sort of jumped the gun because I was excited and quickly sent him an response containing some details about what I would need to do to accomplish the job, how long I thought it would take, and based on that (and what I used to make at my old job that was similar work) I enclosed an estimated quote, which he said looked good.

I said I would get back to him for specifics later in the week after I took care of a few other commitments. But I've never done this before, and I'm not quite sure how to proceed with a few things.

Specific questions I have that I can't seem to find concrete answers to:

1.) For those who are self-employed and do a lot of small-ish jobs, how do your contracts look? I know I need one, but am unsure what needs to go in it. Should I use one of those websites that you can download forms from, or can I write it myself in "plain English"? I don't have time to get a lawyer to look anything over for this particular project, but if I see a possibility of more freelance work, I will definitely do that.

1a.) From a legal standpoint, is there a difference between contract and freelance work? If so, how do I know which one I am?

2.) What is a good way to bill them so that I ensure I get paid, and in a timely manner? This is a small business of about 20 people, if that matters for some reason.

3.) Do I need some official record keeping for tax purposes, or will a spreadsheet suffice?

4.) What is the normal flow of processes that I should have done or should be doing? I'm not exactly sure how to ask this question coherently, but it occurred to me that if someone e-mails me asking me to work for them, there's probably some kind of protocol aside from, "Ok, sure. You need X done, I'll do it this way and charge you $Y for it." I'm sure that doesn't look as professional as it should.

5.) What are some considerations that might seem like common sense to experienced contractors, but that are easy to overlook at start up? What do you wish someone would have warned you about when you started contracting or freelancing?

Sorry if these are obvious questions. I've Googled in a panic and found most of the information I need, but just can't get a solid answer on these few details.

If anyone knows of some good, reputable sites with advice for contract or freelance workers where I could find this sort of thing, I would GREATLY appreciate that too. It seems like I sifted through a lot of "Maek mony at home~!!1!" scam type sites looking for information.

Anon because I don't want to look completely unprofessional under my real name. Again, lots of thanks in advance for any and all advice, I'm sort of freaking out about what I've gotten myself into!

posted by anonymous to Work & Money (12 answers total)

Get yourself over to FreelanceSwitch. They have a metric assload of information and advice on this kind of thing.
posted by Happy Dave at 8:06 AM on March 4, 2009 [2 favorites]

I used to work for someone who said he could find a way out of any contract he'd ever signed, so I think they might be over-rated in terms of providing you with a cast-iron guarantee of getting paid, etc. His approach was to pick on some clause like "work must be completed to a high quality and in a timely manner" then argue that it hadn't been fulfilled in that way. With something subjective like that, there's not much you can do to argue about it. For my freelance work, I've usually sent a letter setting out what's going to be done, for how much, how long, etc. It is often forgotten that trust is still a corner-stone of many business transactions, so if it's not there a contract might not help in any case. If trust is there, the contract (even if it's informal) solidifies the agreement and forces people to actively think about what it is they want from you, rather than "several miracles a day, for free."

For billing, agree milestones after which you bill, or send the bill each month if you expect to be there for a while. Doing it after the milestones also acts as an indicator (if there is a dispute) that the client was satisfied up until that point, otherwise they wouldn't have paid you, right? Nothing like cold, hard cash to say "we love you *and* your work!"

I keep my own records of everything (expenses, which days I work from home, which at the client's office, where I stay, what I eat if I eat out) then pass those details on to my accountant who proceeds to screw the taxman for every penny he can get. You definitely need to get an accountant: get some recommendations if you know someone else who freelances.

Process you have to learn. Agree what you're going to do and how much you're going to get paid for doing it. Make it clear that any delay introduced by the client will cost extra money, because it's taking your valuable time. Document all your meetings and what is agreed. I have so often been shafted by clients who creatively re-interpret what we agreed at meetings when it suits them. I don't think they're being dishonest, it's just that I have a very clear idea what I'm going to produce and they don't: they just want miracles.

So write it down and send it in a letter to them. "This is what we agreed at the last meeting ..." That's one thing I wish I'd realised, the other is "don't be too nice" -- resist the urge to do anything for free. You're a valuable professional, right, so surely they should pay you what you're worth? The other thing is related: if the client is a cheapskate who tries to screw you for every penny, let them go. Don't be driven to despair with work pressure, late-paid invoices, shifting project goalposts, etc, then have to let them go. Just realise it's not going to work and move on.
posted by BrokenEnglish at 8:09 AM on March 4, 2009 [3 favorites]

Been a consultant almost my whole career, always for firms, never on my own. Here's my advice. No need for a contract, a doc called a Statement of Work, or SOW, should suffice. It should include a description of the project, scope (both in and out of scope), a list of deliverables, high level schedule, overall approach, fees, and assumptions and risks that may affect the schedule or cost.

Hold formal reviews and get signoffs for all your deliverables.

I hope you charged a high enough rate! Lots of people undersell and don't realize all the things you have to pay for as an independent (taxes, insurance, time spent not working or looking for the next gig)

Bill weekly. Companies can take a long time to pay, and you need to keep the cash flow up.

Are there any internal processes you need to align your contributions to? You should find out about these before finalizing your SOW.

Happy Dave had some great advice regarding agreements made in meetings. If appropriate, try to volunteer to take the minutes, write down all decisions, and then send it back to all participants for review. Then they have to take an active role in agreeing with the decisions made.

Alternately, or in addition to, I would advise sending a weekly status to your sponsor (the guy who brought you on), especially if he's not directly involved in the day-to-day aspects of the project. Your status should include accomplishments, agreements, and decisions made, plans for next week, and any issues or risks you see in the project. That should cover you in case of a dispute, and prevent him from being blind-sided. It also allows your sponsor to anticipate issues that may not show up in official project documents (nobody likes to broadcast bad news in those!). And you will become a very valuable resource to your sponsor, getting you more business in the future.
posted by sbird at 8:41 AM on March 4, 2009 [3 favorites]

I asked my accountant how I should keep track of my records. She said whatever works for me, spreadsheet, handwritten, using Quick Books etc. Legally you aren't required to have fancy software.

One thing to keep in mind is not to proceed with work until you have the go ahead or approval in writing (I just keep my emails). I usually issue an estimate (I'm a designer so it's all designed and professional-looking YMMV) if requested. My biggest client only requires estimates for about 10% of the work they throw me but we have a relationship in place and it is excellent at paying quickly.

I send out an invoice when I'm done with the job (some people get half up front to start) and usually put 15-30 day terms on it. When someone doesn't pay me in time I send an email inquiring about it and/or a new overdue invoice. My invoices are nice-looking but I'm sure you can find a template out there with something plain that works and is professional enough.

I second Freelance Switch, so take a look over there as well. I'm bad about contracts but one thing to watch out for is "work for hire" which you usually don't want to do as a designer. I think programmers shy away from that too.
posted by Bunglegirl at 8:48 AM on March 4, 2009

sbird makes a good point about takes. When setting your rate keep in mind, if you're in the US, that you'll be paying 15.3% self-employment tax above and beyond what your normal tax rate is.
posted by Bunglegirl at 8:52 AM on March 4, 2009

I highly recommend the Nolo book Working for Yourself. It has not only good information but also sample contracts and forms that you will probably find useful.
posted by camcgee at 9:33 AM on March 4, 2009

Been a consultant almost my whole career, always for firms, never on my own. Here's my advice. No need for a contract, a doc called a Statement of Work, or SOW, should suffice.

This is perfect advice.

You just need to outline what needs to be done, an estimate of how long it will take to get that work done, and your rate.

You can be paid in lump sum, or by the hour. Hourly rates are better, because you will get paid (mostly) according to the hours you work on the project.

In your SoW, make sure you have some basic benchmarks or milestones. Software projects always end up taking more time than you thought initially.

You need to make sure that you manage expectations and let your client know well in advance if things start to go sideways. Weekly meetings are a must.

But what a great opportunity!
posted by KokuRyu at 9:39 AM on March 4, 2009 [1 favorite]

Most of my projects are very small (<1>
For anything more complicated than "I will do this job, when I finish I will send you an invoice, and you will pay me the amount on that invoice within 30 days", agree in advance on:
- milestones and partial payments
- number of review cycles
- what is billable at what rate and what, if anything, is free. For example, in some trades, you'll do one round of revisions for free, but after that, you charge. Failing to stipulate this kind of thing can result in huge overages.
- payment terms
- things that you won't do (avoid mission creep).

You can't redefine the terms of a deal after you agree to it unless the customer springs something new on you after the green light or is very lenient (conversely, if they do spring something new on you, feel free to renegotiate). So consider carefully what you're getting into and be prepared to eat a loss on projects where you get in over your head. It happens.

You do not need any special record-keeping software or ledgers, but there are lots of nice apps out there to make job logging and invoicing easier.
posted by adamrice at 9:43 AM on March 4, 2009 [1 favorite]

Some text got lost after that <1 (serves me right to leave it unescaped). I had said something like "<1 day) for ongoing clients where neither party wants to screw over the other. I do not use per-job contracts. Some of my clients have me sign general contracts defining our relationship. Some send me POs. So far, I've only ever been stiffed for $25."
posted by adamrice at 9:46 AM on March 4, 2009

1.) For those who are self-employed and do a lot of small-ish jobs, how do your contracts look?

I tend to stick with a plain-english statement which lists what I expect to do, how long I estimate it to take, what my hourly rate and invoice expectations are, and some boilerplate about who owns the end product. In my case since I do both design and code work, this gets a little complicated; I assign all ownership of the design work to them as work for hire, and for code I assign unlimited usage and modification rights to them but retain the right to reuse or repurpose similar code indefinitely -- this part is maybe a little overprotective, but I've built up a pretty large library of recyclable code over the years and don't want to accidentally sell it to a client and not be able to use it anymore. For certain clients, when it seems necessary, I also explicitly spell out what I do not expect to do (e.g. long-term site maintenance, hosting, copy writing, free feature adds until the end of time, etc.) (Though I've gotten pickier about clients as the years go by, so with the type of people who need those clarifications I often just turn down the job.)

None of this has ever been put to the test in any real-world legal situation, so it's possible what I'm doing is really stupid and wrong -- but most of the time any disagreements are going to be handled outside of court anyway, so I prefer clarity over legalese.

1a.) From a legal standpoint, is there a difference between contract and freelance work?

AFAIK there's no difference you need to worry about. Contractor implies longer jobs, but I think it's more a semantic difference than a legal one.

2.) What is a good way to bill them so that I ensure I get paid, and in a timely manner?

I bill by the hour, and send an invoice at the end of each month. I don't ask for any money up front, though many contractors do (if I don't trust the client to pay, I don't take the job in the first place, and I view that first month of trusting them as reflecting the trust they've placed in me by offering me the job.)

I strongly recommend against agreeing to a flat fee for any job, because the scope of all jobs expands as you go along; billing by the hour saves you a lot of renegotiation (or working for free).

"In a timely manner" depends on the client. Big corporations tend to be either really fast at paying or really slow (as much as 3-4 months sometimes), depending on how mired in red tape they are, but they always pay up eventually. Startups can be chaotic and may need reminders, but rarely try to stiff you unless they go out of business. Individuals are the most likely to try to screw you over, try to pay you less than what was agreed upon or nothing at all.

Some contractors ask for late fees (see here for some discussion) -- personally I find this too confrontational; I figure if I get paid eventually it's all good.

My process is: invoice every month, followed by polite emailed "hey, so about that invoice?" if it seems like they've forgotten about it, followed by polite but firm phone call if the email is ignored, followed (in extremely rare cases) by a "your next call will be from XYZ collection agency", followed by (in exactly one case) having to actually follow through and turn it over to the collection agency.

3.) Do I need some official record keeping for tax purposes, or will a spreadsheet suffice?

You should keep records of how much you're paid and when the payment arrives; the format doesn't matter. (I use a big spreadsheet and a stack of check stubs.) If the amount is large enough to be taxable, the client should send you a W2 to start the job with and a 1099 statement at tax time (assuming you're in the US).

4.) there's probably some kind of protocol aside from, "Ok, sure. You need X done, I'll do it this way and charge you $Y for it." I'm sure that doesn't look as professional as it should.

Nah, that's pretty much all there is to it. "Professional" doesn't have to mean "stiltedly formal", especially (as in this case) with people you already have a working relationship with. Day to day, contracting isn't really that different from working with colleagues as an employee: you just have new colleagues to work with every once in a while.

5.) What do you wish someone would have warned you about when you started contracting or freelancing?

Bathe regularly, wear real clothing, not just sweatpants and a bathrobe, and find an excuse to get out of the house often. Working at home and only connecting with people via email and phone can be incredibly isolating. This will be doubly true if you live alone.

Charge more than you think you should. Don't just divide your old yearly salary by the number of hours you work and call that your hourly rate; that'd be way too low. Not only are there taxes to be concerned with, and a cushion to make up for the irregular hours you may wind up working, remember that the client is saving a ton of money by not having you as a full-time employee. (Back when I worked at a real job, oh so long ago, my boss once mentioned that his department had to pay the corporation $30,000 per desk, on top of the employee's actual salary, just to keep the lights on.) That savings should be reflected in your hourly rate.
posted by ook at 9:49 AM on March 4, 2009

You really need some agreement about who will do what (well, only if things go sour, but it'll be too late then if you haven't already made one). "I will write ... and you will pay me $xxx/hour (or at milestones, or whatever)." It should be clear, but plain language is fine. but do include the magic words "work made for hire" to describe the deliverables you will create -- that means that they own your creation as soon as it's written simply because they've engaged you to write it, and means they may not (legally) refuse your work to get out of paying you.
You should have some way to show what they've paid you - notations in your checkbook record are fine. Keep copies of the invoices you send, as well. They should file a Form 1099 at the end of the year stating what they've paid you and you should be able to reconcile that against your own records, and needless to say, your claim (on your tax return) and theirs should match.
posted by TruncatedTiller at 10:49 AM on March 4, 2009

Bathe regularly, wear real clothing, not just sweatpants and a bathrobe, and find an excuse to get out of the house often. Working at home and only connecting with people via email and phone can be incredibly isolating. This will be doubly true if you live alone.

This. It's too easy to fall out of regular habits that you have when you're 9-5.

The companies I've worked for have different agreement contracts. Just be sure to read it thoroughly, and be aware that it can be modified. It doesn't hurt to have someone else look it over as well.

For billing and invoices there's lots of online tools and document templates.

n'thng that you don't want to under-sell yourself. It's sort of bartering, set a high but reasonable price, either they say that's fine, or if they come back saying it's too high you negotiate. Heh, I actually had a company I wanted to work with, but because it's a start-up I gave them a low number. They came back and said, no that's too low, and offered me about 5x what I initially estimated. They're happy with the work, I'm happy with the money, but that may be a freak occurrence.

Your taxes will probably get more complicated than your used to.
posted by hungrysquirrels at 1:01 PM on March 4, 2009