Legal requirements that every freelancer needs to know

Until recently, society dreamed of having a stable job that guaranteed a steady income and financial security. Nowadays, more and more people entering the job market are resigning from nine-to-five jobs in favor of the flexibility and freedom offered by freelancing. It is estimated that up to 40% of American employees and 25% of Europeans now choose to work as freelancers. However, this form of employment is still a novelty in the market, so current regulations apply to both freelancers and the self-employed. In today’s post, we will take a closer look at the legal requirements that every freelancer in the United States and the European Union needs to know. Read on to find out more.

What is freelancing in legal requirements?

Freelancing is a form of employment in which a person is not a permanent employee of a company, but works independently as a contractor. Freelancers offer their skills and services to various clients for short- or long-term projects and are responsible for organizing their work and managing their finances. Freelancing comes with many advantages, such as freedom, flexibility, and the opportunity for professional development However, it also presents certain challenges, the most important of which are:

• Income insecurity – freelancers are not paid regularly,
• Managing a business independently – they take full responsibility for all their activities, including settling taxes,
• Lack of stability – they don’t have the same rights and privileges as full-time workers.

What freelancers need to know about the legal requirements?

Freelancers are often self-employed or form partnerships to minimize tax liability, but they may also use specialized platforms to find collaborators, such as Elance, Upwork, or Useme, or work on commission. Depending on the country, they have different rights and responsibilities. Below you will find the most important laws that apply to freelancers operating in the United States and the European Union.

Legal requirements of freelancing in the USA

Freelancers in the United States are often referred to as independent contractors, subcontractors, or seasonal workers. They are treated as business owners, which means they are subject to business regulations. Below you will find the most important legal requirements for freelancers in the United States, but be aware that a particular state or city may have its own rules that must be followed.

1. Tax issues

Freelancers in the United States are obliged to pay income taxes and the self-employment tax. Instead of getting the W-2 form for reporting their taxes, they get several 1099-MISC from their clients, which show the amount paid to the freelancer in a given tax year.

2. Contracts

The structure and content of the contract between the freelancer and the client will depend on the location. However, the contract should always specify the scope of the services and the method of billing. Some states or cities may have additional laws. For example, New York State has the Freelance Isn’t Free Act, which requires clients to provide a written contract to all freelancers who earn at least $800 in 120 days. Los Angeles has taken a similar step.

3. Copyrights and property

Copyright is also important for freelancers. Therefore, the contract should contain provisions on the transfer of ownership and the moment when it occurs. In most cases, this is the moment of payment. If such provisions are not included in the contract, the freelancer’s copyright may be violated by the client.

Legal requirements of freelancing in the European Union

In the European Union (EU), legal requirements vary from country to country – there are no top-down laws that would regulate this issue. However, below are some key rules that freelancers working in the European Union should be aware of.

1. The status of a freelancer

In the European Union, freelancers are considered self-employed, that is, people who run their own businesses. They are independently responsible for their own taxes, insurance, and other obligations. They are not subject to the same laws as employees, meaning they are not entitled to paid vacation or compensation for overtime work.

2. Tax issues

Just like full-time employees, freelancers also need to pay income taxes. They must file a tax return on the form appropriate for the EU member country. They may also need to pay Value Added Tax (VAT) if local laws require it.

3. Contracts

In all EU countries, freelancers are obliged to have written contracts with their clients that specify the terms of collaboration including compensation, scope of work, payment terms, and copyrights. In addition, if a freelancer processes clients’ personal data, they must comply with the General Data Protection Regulation (GDPR), which has been implemented in all EU member countries.

Summary

In both the US and EU markets, there are still no adequate regulations to protect freelancers – they are simply treated as self-employed. However, this situation may change in the near future due to the growing popularity of this form of employment. So if you plan to work with freelancers, make sure you understand the local laws.

Also, if you are an employer and want to manage freelancers in an easy way, use Firmbee. This tool will let you effectively plan the work of freelancers using Kanban boards, giving you full control over their assignments. In addition, you can create contact databases and store documents related to each freelancer in one place.

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