Freelancing 101: The 3 things you need to know, by Jesse Huffman

If there were a job posting for freelancing, it would read like a classified ad for a pyramid scam: "Work from the comfort of your own home! Set your own hours, pick your jobs, and build your creative empire as you see fit!" But unlike mailing away $200 to a dodgy offshore address, going to work for yourself has become a legitimate form of modern employment, especially for creatives.

According to a 2006 U.S. Government Accountability study, independent workers (freelancers, consultants, independent contractors, temps, part-timers, contingent employees and the self-employed) count for more than 30 percent of America's workforce today. And for many freelancers, the exclamatory promises of that newspaper solicitation ring true--the graphic designers, animators and illustrators we interviewed for this article ranked a "flexible work schedule" and "avoiding office politics" the top reasons for perusing an independent work path.

If there were a job posting for freelancing, it would read like a classified ad for a pyramid scam: "Work from the comfort of your own home! Set your own hours, pick your jobs, and build your creative empire as you see fit!"

Still, there remains a price to be paid for the word "free" in freelance. Freelancing is a business, and running that business can be costly and complicated. Below, we'll discuss the issues of billing, insurance and taxes, and intellectual property rights, and look at how some freelancers around the U.S. deal with them.

1. Billing: Fees and the art of diplomacy
It starts with the first job you land--what to charge, and how? You want to be equitable, you want to make the client happy, and you want to be able to pay the rent. In her widely-cited essay "Getting Your Clients to Pay Up," creative business consultant Emily Cohen advises using a payment schedule, and lays out 12 "proactive measures and precautions" for freelancers who want to get paid on time and avoid the dreaded problem of a non-payment. It's a daunting list of business considerations, including schedules, invoices, change management strategies and termination policies--all of which make good sense. But do all designers need to go that far?

Aaron Draplin is a graphic designer working in Portland, Oregon, and has more than a decade of experience working in the snowboard industry. He feels that the measures encouraged by Cohen would be foreign to his model of a typical client-designer relationship.

"Some of these businesses are so homegrown that contracts have a tendency to be threatening," said Draplin. "If you're working with a buddy you used to snowboard with, you don't have to worry about that stuff." With close friends as clients, he doesn't bill the typical "50%" up front. His business revolves around several retainer clients whom he works with on an annual basis and bills quarterly--he estimates all the projects involved in the contract, and pads on top of that figure for changes or overages. On short-term projects, Draplin would rather pay the cost of mid-design changes instead of charging for every minute over the clock; adding that this always guarantees him additional work, and more than makes up for the lost time. As far as non-payments, Draplin cites the insular world of the snowboard industry as his recourse--in such a tight-knit community, word of mouth is enough to sink a brand's reputation.

Geza Darrah is a graphic designer in a much different world. Working out of his home in Florida, Darrah's clients are almost all individuals or small businesses in the Sarasota area. Like Draplin, Darrah works on retainer with several long-term clients. But for project-by-project clients, he follows Cohen's plan almost to a T.

"I can't take on multiple smaller projects if my time is commanded by one client," said Darrah. "So I charge 50 percent up front instead of extending my time as credit and waiting 30-60 days for a check to be cut at the end. It gives me a buffer to keep the cash flow moving."

Of course, this strategy also provides insurance against clients changing their mind at the end of a completed, but un-billed project. "If you're trying to track down three-quarters of that money, you've just expended much more of your time," said Darrah. "But if you have half of it up front, it proves that your client is serious about that project." Once the first half of his estimate is reached, Darrah bills in increments as pre-determined elements of the project are completed. He uses his own contracts, which include actual fee, payment, and non-payment clauses.

On rates, the two designers also differ. Draplin uses a more holistic project-by-project measure. Darrah judges his fees off the regionally-based fee scales published on AIGA.org, and Communication Arts, and Coroflot.com, and on conversations with local people working in his area. And while Draplin has never had to go any non-payment recourse besides launching a confrontational email or phone call, Darrah is currently in the thick of trying to solve a non-payment issue.

"I'd like to have an arbitration clause in my contract," said Darrah. "Which seems a little backwards, but it's also a great lesson learned going forward from this point. Advice to anyone starting to freelance: get solid contracts, and talk to a lawyer or collections agency upfront, before you end up in the situation."

Taking things to court can often be more expensive than it's worth, notes Elena M. Paul, Esq., the executive director of Volunteer Lawyers for the Arts. The cost of a lawyer can easily add up to more than the money designers are trying to recoup. Then there's the time expenditure, plus the fact that given the small nature of creative industries, bringing a claim will likely permanently end your working relationship with the client...and could potentially scare off others, too.

"Filing a lawsuit is at the end of a very long process," said Paul. The first move is conversation, and the rest is an escalation, each step of which should be considered closely.

So which approach is right? Laid back confidence or the regimented pro-activity that Cohen espouses? Draplin and Darrah have seemingly disparate business approaches, but both believe in open communication and partnership with their clients. The catch is that most designers don't have the luxury of working with close friends, and for them, using a written contract, a set payment schedule, and regional wage scales are the best ways to avoid the pitfalls of non-payment.

"It's not that you need to have something in four point font and onion skin that you can later whip out and say 'ah ha'--that's completely a waste of time in these situations," says Paul. "These are personal relationships and you're just confirming in writing that everyone is on the same page."

2. Insurance and Taxes: Where did all the money go?
"It's feast or famine," said Sarah Horowitz, founder of the Freelancer's Union, a nonprofit that provides discounted insurance and advocacy for independent worker's rights. "Freelancers work like crazy and then they have periods where there's no work at all." Horowitz said the challenge of matching income from "episodic employment" with the monthly expenses of mortgages, rent, and bills is only compounded by the complicated and costly taxes levied on freelancers, and by the steep costs of insurance.

Freelancers pay their portion of social security taxes like traditional employees--but are also required to pay the employer's portion. Additionally, many cities, such as New York, charge an Unincorporated Business Tax, and there are numerous expenses such as health insurance which independent workers are unable to write off. And while most large companies offer their employees discounted or free health care, freelancers are on their own, facing the steep rates of individual plans. "Any way you cut it," said Beth O'Rourke, a graphic designer and branding consultant working in the Bay Area, "it's a kick in the pants."

"I had shopped around for health insurance, and it was such a dismal situation," says Masako Miyazaki, a Brooklyn-based illustrator and graphic designer. "Then I heard about Freelancer's Union." By organizing freelancers into their own constituency, the Freelancer's Union offers members the discounted group-rates enjoyed by the traditionally-employed. The Freelancer's Union lobbies against the tax laws that Horowitz sees as unfairly biased against the independent worker. The New York City UBT is their first target, and has become a go-to issue in local politics. In the meantime, it's still every 1099er for him or herself.

"You have to really know what you're doing," said Horowitz, "which is why most freelancers get an accountant."

After doing her taxes online for several years, Miyazaki decided to hire an accountant. O'Rourke has employed one for 12 years, and regularly consults him for advice on taxes and business in general. Every other freelancer we spoke with agreed that professional help with taxation was the way to go.

"It's just a matter of what to do so people don't come after you," said O'Rourke. "As long as you're contributing money and paying taxes on the services you're performing, as long as you're within the law, you just take the steps to set up a legitimate business over that first year."

3. Intellectual Property: Knowing your clients, knowing your rights
For freelancers, securing jobs can mean negotiating the minefield of intellectual property rights. Who owns the work that freelancer's create? "There's a lot of potential for abuse," said Greg Victoroff, Partner at Rhode and Victoroff, a copyright and transactions litigation firm in California.

It's a given that the rights to work created by full time employees are typically owned by that employer. Freelancers often find themselves in a more tenuous position. Unless there is a written agreement to the contrary, when a freelancer goes to work for a company, he or she owns the copyright to what he or she creates. But employers have long been hip to this. While each contract is different, freelancers often are faced with a "work for hire." The rights to work created under this type of contract are owned by the employer, and can be used in perpetuity, beyond the original purpose expected by the designer. Non-Disclosure Agreements and non-compete clauses included in contracts can render a designer's ability to work an actual "trade secret," leaving her or him unable to work in the same industry after the engagement.

IP rights are part of a contract, so they are up for negotiation between freelancer and client. "Keep some perspective," advised Victoroff, "understand what is expected of you--are you being compensated fairly for a work for hire, or is it appropriate to give less than all rights? And if so, act like a professional and prepare invoices that are license agreements--a simple sentence that tells what rights are granted."

"Photographers have it nailed," said O'Rourke "A lot of the time they own the rights to the photos they take in perpetuity, so companies pay for usage. As a visual designer, or a creative director, there's more grey area and it's not as well defined."

In the design industry, too much hassle over rights can lead to lost jobs and distancing potential employers. Elliot Clapp, an illustrator and graphic designer in Providence, Rhode Island, said "never a work for hire" was beaten into him at design school, but in the real world it's difficult to follow this mantra. "It's a balance of how important the rights to your work are, compared to actually working and getting a job."

For O'Rourke, taking this extra step comes down to the dollar amount. "If I got a job for a $100,000 or more, I might involve an attorney to protect myself." Otherwise, she considered the situations Victoroff described to be "worst case."

Miyazaki doesn't lose sleep over negotiating her IP rights either. "What I do is more like labor. I care that my employers are happy with the work I do, and I just consider whatever I do to be theirs."

All three network with other designers, friends and clients to get their jobs, and say their working relationships are built on mutual respect. In this way, one of the perks of freelancing balances out the hardships--for the most part, you get to choose whom you work with.

"Word on the street will be out there," O'Rourke said about shady employers. "If they've stiffed people, if they don't pay, if they're difficult, you find all that stuff out and stay away from them."

Is it worth it? Of course.
Bills, taxes, insurance and working with integrity--freelancing can be tough, but the individuals mentioned above, and millions more, wouldn't have it any other way.

"You have to pay to run your own business," said Darrah. "It's a huge responsibility; sometimes it's a nightmare. But you're not just getting a paycheck and going home at the end of the day. When you land a new contact, meet some new clients, collect on those checks--it's a lot more rewarding than that. It has the feeling of potential and growth, wherever you want to take it. That's the driving force behind freelancing."

Jesse Huffman is a freelance writer and photographer. Born and raised in Vermont, Jesse lived in the Pacific Northwest for ten years, making his living jumping off cliffs as a professional snowboarder and writing about the experience for snowboard magazines. After quitting the adrenalin Bohemia of mountain-top action sports, he moved back east, settling in a peaceful Greenpoint industrial loft to raise ferns, finish school and get "normal" bylines. He can be found at jessehuffman.com or at jessehuffman[at]gmail[dot]com.