Getting Paid Matters – Independent Contracting 101

As companies, both small and large, have trimmed their full-time employment base over the past two years, they've turned to independent contractors to accomplish many short term goals. Similarly, many workers and professionals have increasingly turned to this mode of employment -- some by choice, some out of necessity -- to meet demand. Working for one's self can be exhilarating. But it also requires enhanced diligence and new skills in addition to one's established expertise -- particularly on the contractor side of the procurement process.

This morning's WSJ claims that "About 40% of freelancers had trouble getting paid in 2009, according to a survey released in mid-April by the New York-based Freelancers Union, a 135,000-member organization for independent contractors across the country in fields such as media, technology, and advertising." Extrapolating further upon the aggregate difficulty of getting paid, The Journal quotes "Littler Mendelson, a San Francisco-based employment law firm with 49 offices nationwide, [that] predicts that in 2010 half of previously eliminated positions filled will be filled by contingent workers -- such as independent contractors, freelancers, and temp workers -- accounting for as much as 25% of the work force nationwide -- based on client interviews and a survey conducted by a staffing analysis firm."

Many independent contractors find work through comfortable professional or social contacts with whom a modicum of trust has been previously established. This must never suffice as a substitute for a basic contract that states the precise scope of work, estimated time to completion, anticipated reimbursed expenses and the fee to be paid -- including payment terms. Stating the terms of payment up front is essential. If the scope of work is performed over a period of many weeks or months, establish a schedule of payments that coincide with interim benchmarks while work is in process. This will not only provide needed cash flow, it will also establish and maintain a mutual project commitment and can act as an early warning mechanism if the interim payments are not forthcoming. It's also wise to make certain that the company representative with whom one contracts is authorized to sign the agreement by asking for a purchase order to cement the transaction.

Companies will often not issue purchase orders to individuals. Should this be the case, consider incorporating your services as a sub chapter "S" corporation within your state. This can frequently be accomplished for about $500. It will also increase the cost of tax filing somewhat, but the required book keeping and protection of personal assets is well worth the cost.

The Journal article also spends a great deal of ink discussing late fees and complaint filings in small claims court as a last resort to getting paid. Independent or small contracting is about the relationship. Your best prospects will always be existing and past clients. When the project is contracted correctly and payment is structured at reasonably close intervals, court claims and late fees are not necessary. If a payment glitch evolves in process, work it out with calm persistence. If that doesn't work, cut bait and work with those clients who respect you and the terms of agreement. And if you're an S-corp, you can probably deduct the periodic lost revenue at tax time.

William Busch

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