Help with contracts and such for freelancing?

December 31, 2010 8:56 AM

I've got a side coding project coming up, and I need help to figure out the logistics of getting paid for it. Are there standard contracts for this sort of thing, or places where I can get a contract written up? Should I do it as a 1099, or should I attempt to incorporate myself - and if so, how do I go about that?

I have a full-time job, but I've got this project coming up on the side. I've never really done paid freelancing like this. Are there standard legal contracts for freelancing, where I can just plug in my name and necessary data? Should I try to find a lawyer to help me with that? Seems a bit excessive, but if it's necessary.

The client and I agreed on hourly billing, and I sent them an estimate that explicitly stated it was such, and that actual hours could be different. I should probably write that into the contract, right?

I was thinking that I'd send an invoice every other week or so. Are there standard invoice templates for specific project contracting jobs like this?

And as to contract types: I know some people incorporate themselves, but I'm just one guy doing this on my own. I asked a CPA that I know and he said that a 1099 should be fine, but that I would have to pay a self-employment tax. (I'm in NY, for what it's worth.) Is there any benefit to self incorporating or something like that? And do I have to ask about getting a 1099 from the client at the end of the year, or will they send that to me?

Sorry this post was all over the place. Also any other advice you could offer up about this sort of thing would be great. Thanks!

posted by gchucky to Work & Money (5 answers total)

On a federal level, the self-employment tax your CPA mentioned is both halves of FICA (which is for Social Security and Medicare). In your day job, you'll notice your check stub shows that FICA is taken out of your pay -- it's about 7.5%. But, your employer paid the other half. As a 1099, you pay both halves -- about 15%.

You'll also pay estimated taxes quarterly. And you can deduct business expenses. You might want to use the CPA for your taxes, at least to see how it's done until you get used to it.

Your invoice can be simple:
- At the top, type INVOICE.
- Under that, type the date, the company name and address, and your name and address (just like a letter).
- Under that, put a table with 4 columns: Date, Hours, Rate, and Amount. Add one row for each date in your invoice. On the last row, type TOTAL AMOUNT DUE and type the total amount under the Amount column.
- Below the table, add a sentence about payment due date, such as "Payment due within 30 days of receipt of this invoice." Commonly, this will be 30, 60, or 90 days. It's not very common or reasonable to expect payment within a week or two. It's unwise to leave this open to their interpretation.

There are templates for invoices, which you will want to read thoroughly and revise to fit your needs. The search term for googling is "independent contractor agreement", which brings up samples such as this one.

In a previous AskMe, I gave links to information about setting rates, writing a contract, and paying taxes, which may be helpful.
posted by Houstonian at 9:43 AM on December 31, 2010 [1 favorite]

And of course, when I wrote, "There are templates for invoices" -- while true -- I meant, "There are templates for contracts."
posted by Houstonian at 9:46 AM on December 31, 2010

To add to what Houstonian said about FICA, as an employee of your own corporation, you'd pay only half the FICA from your wages; the corporation would pay the other half: twice the paperwork, same tax. It all comes out of your (or your corp.s) gross income for the job. The usual reason for incorporating is for limitation of liability. Corporate law was set up for just that reason - to encourage entrepreneurship without the chilling effect of the potential to lose everything you (personally) have. In practice, a solo corp is assumed to have been set up to escape liability (no sh*t - that was *exactly* the point of allowing corporate entities!) and that protection is then often ignored by the "justice" system. Stupid. And a waste of time and money for you. A second reason is that some corporate clients only want to do business with corporate entities, not sole practitioners (though it sounds like you already have an agreement in principle to work together).

But: definitely have a 10 minute chat with an accountant about the costs in time or money to keep corporate books, and with a lawyer about the risks and benefits to you of incorporating or not.
posted by TruncatedTiller at 9:59 AM on December 31, 2010

Simplest way is to do it as a 1099 and buy the "Consultant & Independent Contractor Agreements" PDF from Nolo Press and mold their multiple-choice contract template to your liking.
posted by rhizome at 10:57 AM on December 31, 2010

I don't have a whole lot of information, cause when I did freelance coding I was living in NH, and I'm sure the laws are different, but for what it's worth...

There was no need for me to incorporate myself, because I was working for one company (or two) and so a 1099 was easy enough to run off of. If I were starting a coding business working for large numbers of people/companies, then I'd have probably created an LLC (limited liability company, I believe..). As it was, I ran as a "sole proprietor" meaning it's just me.. and filed taxes based on a 1099 that they provided me. At least in NH (though I assume this is federal and thus USA-wide) the person you worked for is required to provide you with a 1099 by January 31st.

If I were you, I'd forgo any business registration and just collect checks and file your 1099 at the end of the year... I don't see any benefit to incorporating yourself at this point in the game...

You should definitely speak to an accountant about this though. And maybe a lawyer about the contract..
posted by Glendale at 2:38 PM on December 31, 2010