Misunderstandings can exist between clients and freelance designers regarding their working relationships. Questions of who owns what, what files are provided to the client, when and how the project gets accomplished, can cause stress for both parties if left unanswered. I have worked with several clients who attempted to treat the freelance relationship as a hired relationship, and can attest first-hand to the tension that results.
Both parties come into the relationship with assumptions and expectations. For the client and the freelancer alike, proper classification of their roles and contractual relationship will help them avoid tax liabilities and potential penalties. Basically, there are two forms of contracted relationships. I discuss these from a designer’s point of view.
The Employee
If you’re a staff or in-house designer, you are an employee, and you are automatically in a work-for hire relationship with your employer. Everything you create under your scope of work belongs to your employer including preliminary work, native files, and rights of use. Your employer is the legal author of the work, and controls it. Whether or not you may use the work in your own portfolio depends upon your employer’s policies.
Employers determine when, where and how their employees work, how they will be paid, what benefits they receive, and pays them salaries. They pay taxes on behalf of their employees and deduct the taxes from paychecks. Employers also supervise and train their employee, provide tools, equipment and materials, and vacation and other benefits. Employees can quit and employers can fire. Employees receive a W2 from the employer.
The Independent Contractor
Freelancers are independent contractors and self-employed. They work on a per-project, contracted basis; control the rights to their work; determine when, where and how they work; work with multiple clients concurrently; select who they work with; provide their own equipment, space and materials; are paid in lump sums for projects; and are responsible for paying their own taxes. They invest in their businesses; engage in marketing and promoting their work; can sub-contract aspects of a project; and cannot be dismissed by their clients except as contracted. Independent contractors can’t resign a project without fulfilling their contracted obligations to the client. They receive a 1099 from the client.
Independent contractors are the authors of the work they create, whether it’s for a client or a personal project. As the author of the work, the independent contractor negotiates the sale or licensure of usage rights to the client. The client receives what is agreed upon, and the freelancer is is able to include the work in their portfolios and promotions, and reserves all other rights for themselves. They can license the same work to different parties, depending on what their contracts state.
Work for Hire and the Independent Contractor
If a freelancer agrees to a work-for-hire relationship, they’re basically making themselves employees without receiving the benefits of employment. Organizations such as the Graphic Artists Guild have advocated against work-for-hire contracts for freelancers because the freelancer gives up all rights to and control of the work they create under these contracts. But it remains up to the individual freelancer whether or not to accept work-for-hire contracts. This is part of the freedom of being independent.
If you’re a freelancer in the USA, work-for-hire MUST be agreed-upon in writing, and the work being done must meet certain IRS and US Copyright Office criteria. It must be created as part of:
(1) a translation,
(2) a contribution to a motion picture or other audiovisual work,
(3) a contribution to a collective work (such as a magazine),
(4) as an atlas,
(5) as a compilation,
(6) as an instructional text,
(7) as a test,
(8) as answer material for a test,
(9) or a supplementary work (i.e., “a secondary adjunct to a work by another author” such as a foreword, afterword, chart, illustration, editorial note, bibliography, appendix and index).
The work-for-hire model becomes sticky when applied to independent contractors, because we make a living via our portfolios, and need to be able to enjoy the full ability to promote and display our work. Many designers (myself included) avoid work-for-hire contracts by licensing specific rights instead.
Clients who require work-for-hire contracts need to be sure they have written agreements with the freelancer, and that these contracts are signed prior to the start of the project. Clients should also realize that they’re contracting freelancers, not hiring them.
Gray Areas
There are “gray” areas. For example, a freelancer who works on site at a business under the supervision of the business for the duration of a project or a defined period of time, is highly likely to be considered an employee. Freelancers who obtain work through temp agencies are also likely to be considered employees of the agency or the contracted business. Independent contractors may work on site at a business, but are not considered employees. The IRS has established safe harbor rules that take into consideration the generally-accepted practices within certain professions to determine the working status.
As an independent designer and illustrator, I don’t assume that my clients know what our working relationship is. Therefore, my contracts specifically state that our relationship is not a work-for-hire. I also specify what rights are transferred to the client, and when. Including these clauses has saved a lot of trouble. Disagreements over who owns what and what the client actually pays for and receives are avoided. Additionally, I’m careful to discuss the “project” rather than the “job”, and to use words such as “working with” rather than “working for”.
Disclaimer: I am not an attorney. If you need legal advice, please consult a tax or intellectual property attorney in your area.
Related Resources:
http://www.irs.gov/uac/Employee-vs.-Independent-Contractor-–-Seven-Tips-for-Business-Owners
http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Independent-Contractor-Defined
http://www.copyright.gov/circs/circ09.pdf
http://www.law.msu.edu/clinics/tax/IC_Employees.pdf
http://copylaw.com/new_articles/wfh.html
