Disclaimer: Please note that this article contains general legal information and doesn’t contain legal or tax advice, and isn’t intended to constitute legal or tax advice.
Thriving in the competitive world of freelancing can be hard enough, but having a decent understanding of the legal landscape can make it a whole lot easier.
Failing to follow proper legal procedures can put your business at risk, potentially leading to costly legal disputes. Protecting your interests and avoiding costly legal mistakes is crucial to sustaining a successful freelance career.
In this article, you’ll find out some of the most common legal mistakes freelancers make and how to avoid them.
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Lacking a Solid Contract for Freelance Work
The Perils of Not Having a Freelance Contract
Failing to use written contracts is a common mistake that many freelancers make. Verbal agreements can be confusing, easily forgotten, or misrepresented. As a result, it’s essential to have all your project details, deliverables, timelines, and payment terms written down in a solid written contract.
Common Mistakes in Your Freelance Contract
A solid written contract should set out the scope of work, payment terms, and other crucial aspects of the freelancer-client relationship. It provides a solid foundation for collaboration and shields both parties from potential misunderstandings or disputes.
Not including the necessary provisions in contracts is another common mistake and can happen when you lack the time to prepare a solid contract or for you to check a contract given to you by your client.
I recommend using your own written contract (prepared by you or your lawyer) whenever possible as it will almost always be more suited to your needs than a contract your client presents you with.
Provisions like the scope of work outlines, payment schedules, intellectual property and ownership rights, termination clauses, and dispute resolution are critical in ensuring that both you and your client are on the same page about what’s expected throughout the project.
Find out more about why as a freelancer you need a solid contract for your freelance work with clients, and read more about the crucial details that your written agreement should include.
Using unclear or vague contract language is another mistake to avoid. Your contract should be precise and clearly outline your and your client’s expectations for the project, including who is responsible for what, and what happens if something goes wrong. Vague language can leave room for interpretation, leading to misunderstandings and disputes.
Choosing the Wrong Business Structure
Registering your business can legitimize your operations, provide tax benefits, and, depending on the structure you choose, limit your personal liability. Registering your business may be required by law in your jurisdiction.
Choosing the right structure for your business depends on factors such as your workload, budget, liability and risk management, preferred tax planning, potential benefits to your clients, as well as your planned future growth.
When starting as a freelancer, you should set up the legal structure for your freelance business that’s best suited to your current and future needs. For most freelancers, there are in practice 2 main options – sole proprietorship or LLC.
Should a Freelancer Form an LLC? Check our overview of sole proprietorship vs LLC and find out which is the best business structure for you as a freelancer!
Misclassifying Your Freelance Status – Self-employed vs. Employee
While employees typically receive benefits and have taxes withheld from their paychecks, self-employed individuals shoulder the responsibility of managing their taxes and insurance.
The degree of control over work and financial risk is one of the key factors in determining classification.
Misclassification can lead to substantial financial penalties, back taxes, and lost benefits. It’s vital to correctly classify your working status to avoid legal repercussions.
Find the difference between freelance and self-employed, examine if you’ve been correctly classified and what your legal status is, in our post on when a freelancer becomes an employee.
Intellectual Property Issues
Registering your work with the appropriate government agency, utilizing watermarks, and stipulating ownership rights in contracts can prevent unauthorized use of your creative works.
If you’re new to these issues, first familiarize yourself with the following basic legal concepts to avoid infringement and protect your work:
Copyright Basics for Freelancers
Copyright grants the owner certain exclusive rights with respect to their original creative works.
It can prevent other people from copying, distributing, and modifying your work without your permission.
In most jurisdictions, copyright automatically protects original works of authorship, such as written content, graphics, music, and software.
While copyright protection is automatic (i.e. registration isn’t required), registering your work with the appropriate government agency can provide additional benefits in case of infringement.
It grants the creator exclusive rights to publicly reproduce, distribute, and display their work.
IMPORTANT: As a rule, you can’t copyright an idea. You can only protect your original expression of an idea.
#1 Most Critical Rule: Monitor the market (i.e. regularly scan the internet) to make sure people aren’t copying your original works. Take action if you identify infringements. You can issue a cease and desist letter to remove infringing content from websites, digital products, or others.
#2 Most Critical Rule: Make sure you and the people working for you aren’t copying the original works of other people (even unintentionally). Seek proper permissions, use royalty-free resources, and create original content.
If you’re using content created with Notion AI, check who owns the copyright to content produced with Notion AI and how to avoid costly copyright infringements.
Trademarks Steps Freelancers Should Take
A trademark is a word, phrase, symbol, design, or any combination of them that identifies and distinguishes one party’s goods or services from the goods and services of others.
Trademarks help consumers identify the origin of products and services, allowing them to make informed choices.
REMEMBER: Before adopting a trademark, you should run a trademark search to see if anyone else is using your mark or a similar mark on goods or services similar to yours. The aim is to ensure you won’t infringe on the rights of others.
A trademark search involves checking various databases, including national trademark registers, domain names, and social media platforms.
IMPORTANT: A trademark search can save you time and money spent on rebranding when you realize your mark is too similar to somebody’s else.
Consider seeking a trademark registration to make it harder for others to use and register any mark similar to yours.
Trade Secrets – Make Proper Arrangements
A trade secret can be any information that you reasonably attempt to keep confidential, and that is valuable due to its confidential nature.
Trade secrets are formulas, designs, and drawings of computer programs, lists of suppliers and clients, advertising strategies, and more.
REMEMBER: You must be proactive to protect your trade secrets, i.e. take reasonable steps to keep them confidential, including using non-disclosure agreements (NDAs) with your business partners, contractors, clients, and employees.
IMPORTANT: There is no registration for trade secrets.
Patents – Quick Guide for Freelancers
Especially if you’re involved in innovative fields or work with clients who hold patent rights, it’s essential to protect and monetize your innovations and avoid infringing on the patent rights of others.
To qualify for a patent, an invention must be novel (not known to the public before you file your application), non-obvious, and useful.
Patents encourage innovation by rewarding inventors for their efforts and disclosing new inventions to the public.
REMEMBER: Ensure that your work or the products you create for clients don’t infringe on existing patents. Perform due diligence and seek professional advice if necessary.
IMPORTANT: Patent protection is territorial, meaning that a patent granted in one country doesn’t automatically provide protection in other countries.
| Main types of trademarks | Description | Example |
|---|---|---|
| Word marks (logotypes) | Include only letters (words, or short phrases) that identify a brand, i.e. company name or product name consisting only of words no symbols, mascots, or badges | Nike |
| Logos | Graphic symbols or designs representing a brand | Apple logo |
| Slogans | Catchy phrases associated with a brand | McDonald’s “I’m Lovin’ It” |
| Combination marks | Combination of words and design elements | Starbucks logo and name |
Overlooking Tax Obligations
Underpaying estimated taxes, neglecting to track business expenses, and not retaining accurate records, including receipts and invoices, can result in financial and legal repercussions for your freelance business.
Learn when and how to invoice for freelance work, plus when it’s time and how to give a receipt to your freelance clients. Check our quick comparison for freelancers – receipt vs. invoice.
Thorough record-keeping simplifies tax filing, enables you to claim deductions you’re eligible for, and ensures compliance with tax laws. Unless you have enough time and knowledge to manage your tax responsibilities by yourself, you need high-quality accounting services that suit your business needs.
Next thing to keep in mind as a freelancer is to separate your personal and business finances. Even if it isn’t strictly required, consider using a separate bank account that’s only for your freelance business’s finances.
Failing to Comply with Licensing and Permit Requirements
Operating without the necessary licenses or permits can result in fines, penalties, or even business closure.
Always check the requirements for your industry, location, and the nature of your work in the jurisdiction you operate your business. Researching local and country regulations will help you identify pertinent licenses and permits.
Find out if freelancers need a business license, and see what types of licenses, permits, and registrations your freelance business may need and what the consequences of not having your freelance business license can be.
Tolerating Late Payments & Non-Payments
As a freelancer, managing your cash flow and ensuring timely payments from your clients is critical to your financial stability. Late payments and non-payment can be frustrating and extremely disruptive to your freelance business.
By proactively addressing late payments and non-payment issues, you can maintain healthy cash flow, and focus on delivering exceptional work for your clients. Implementing strategies for prevention in this regard can help minimize the negative impact of payment delays on your freelance business.
Implement a simple but highly effective procedure to prevent overdue invoices – check our comprehensive Freelance Guide to Getting Paid on Time (No Overdue Invoices!). And don’t forget to check how to avoid scam freelance clients who can’t fulfill their payment and other obligations towards you.
As a freelancer, staying legally compliant is an important part of running a thriving freelance business. By avoiding the common legal mistakes outlined above, you can protect yourself, your business, and your clients. Follow these guidelines to avoid legal issues and focus on delivering the best services and products and growing your business.
Starting your own freelance business is thrilling, draining, fulfilling, challenging, nerve-wracking, and many more things, all at once. Feels overwhelming? Our how to start freelancing checklist will show you how to start freelancing the right way from the get-go and help you avoid time-consuming mistakes.
FAQs – Legal Issues Every Freelancer Should Know
The most common legal mistakes freelancers make and how to avoid them include:
• Not having a written well-suited contract. A well-crafted contract protects both parties and outlines the project scope, deadlines, payment terms, and other essential details.
• Neglecting to choose the right business structure for your freelance business. Registering a business offers legal and financial benefits, such as limited liability protection and tax advantages.
• Misclassifying your freelance status. Understanding the difference between an employee and a self-employed person is crucial for tax and legal purposes.
• No protection of intellectual property. Understanding copyright, trademarks, and patents can help you protect your work and respect the rights of others.
• Ignoring your tax obligations. Always check your tax responsibilities and keep accurate financial records to avoid penalties and complications.
• Failing to comply with licensing, permits, and regulations. Complying with relevant laws and industry-specific regulations is essential to avoid fines and legal issues.
• Tolerating late payments & non-payments. Implementing clear payment terms, requiring deposits, and utilizing invoicing software can minimize the likelihood of payment delays or defaults.
In freelancing, you should avoid:
• Underpricing your services. Research market rates and value your skills and expertise fairly to avoid undermining your income potential and professional reputation.
• Poor time management & overcommitting to projects. Manage your workload carefully and increase your productivity while working from home to maintain a good work-life balance and ensure high-quality deliverables for your clients.
• Neglecting client relationships. Building strong relationships with clients is essential for maintaining a steady flow of projects and referrals.
• Failing to market yourself. Actively promote your services through networking, online presence, and other marketing strategies to attract new clients and grow your business.
• Overlooking the legal side of things. Avoiding common legal mistakes that freelancers make will help you focus on growing your business instead of spending your resources on fines and costly legal disputes.
The most difficult part about being a freelancer can vary depending on individual circumstances, but common challenges include:
• Inconsistent income. Fluctuating workloads and payment delays can lead to financial instability and stress.
• Managing multiple roles. Freelancers often need to juggle multiple roles, such as project management, marketing, and accounting, which can be overwhelming.
• Isolation & loneliness while working from home. Working alone without the support of colleagues can lead to feelings of isolation and a lack of motivation.
• Maintaining work-life balance. Without a structured work environment, freelancers may struggle to set boundaries between work and personal life, leading to burnout or reduced productivity.
• Staying competitive. Continuously updating skills, adapting to new technologies, and staying abreast of industry trends can be demanding but is essential for long-term success.
Find out more about the pros and cons of freelancing so you have a clearer understanding of the freelance lifestyle.
