5 legal issues freelancers can face and how to manage them
When it comes to choosing a career as a freelancer, the benefits are abundant – having the freedom to choose how much or how little work you take on, where you work, who you work with, what you work on and overall having the freedom to control your own career.
But when choosing to work for yourself, you take on all the responsibilities that come with running a business which leaves you open to a range of legal risks.
If something goes wrong or you accidently make a mistake, you could be left facing a legal battle and financial struggles.
In this article, we’ll look at 5 of the most common legal issues freelancers face and the steps you can take to successfully manage these situations and give your business the best chance of thriving.
1. Not getting paid on time
Many freelancers and small business owners will agree that late payments are one of the main challenges they face. If a client doesn’t pay you on time, or they refuse to pay you at all, it can cause financial difficulty and put a strain on your relationship with your client.
If you’re new to freelancing and still building up your client base, not getting paid by a client could be make or break for your business.
Having to check and chase your clients on payments can be uncomfortable, stressful and time consuming.
To help manage late payments, it’s vitally important to make sure that you have a written and signed contract for services for every client you work with. With a signed contract that outlines payment terms and conditions, if a client hasn’t paid you on time, they are in breach of their contract which means you can take legal action against them.
Without a contract, if a client does not pay on time, there is little you can do.
In your contract, make sure you outline how and when you will be paid. Provide the information your client needs for the payment to be processed. If the process is set out in a document already then you can refer to the document by name.
It’s important to have the process understood and flagged somewhere to reduce the risk of issues further down the line.
Explain in the contract what happens if they are late to pay and how interest could be added. It’s worth also considering a milestone payment method where you ask for a deposit upfront to ensure there is a financial tie in from the beginning.
On the day your payment becomes overdue, ring your client to remind them. If for some reason they’re unable to pay on the day, try to agree a date when the payment will be made.
If weeks pass by and you’re still waiting to be paid, it could be worth seeking legal advice from a solicitor. This is where being covered with legal expenses insurance can be helpful. If a client is in breach of their contract and you want to take legal action, legal expenses insurance will cover your legal costs and expenses.
As a self-employed professional, completing your self-assessment tax return is an important responsibility.
Ensuring you've completed your tax return correctly can be time consuming and if you make a mistake, it could result in a tax investigation from HMRC.
To avoid this happening, try to be extra vigilant when completing your tax return. When you’re busy with work, it’s tempting to leave it to last minute but try to give yourself plenty of time to get it completed. This will prevent mistakes from being made.
At times though, even when you are vigilant and think you’re doing something correctly, you can still find yourself facing a tax investigation.
As well as the tax return potentially causing legal issues, there’s also tax status factors to consider. If you’re working outside IR35 as an independent business but HMRC suspect that you are working inside IR35, this again could lead to you dealing with a tax investigation.
If you’re self-employed, it’s important to ensure you have a good understanding of IR35 legislation to avoid unintentionally declaring the wrong tax status. Take some time to understand the three key factors that determine IR35 status (personal service, control and mutuality of obligation) as well as some of the secondary factors to help protect yourself.
In the worst-case scenario, if you are subjected to a tax investigation, having legal expenses insurance will protect you financially by covering your legal costs and expenses. If you’re not currently covered with legal expenses insurance, it’s worth learning more about what it covers and considering this type of business insurance cover.
3. Accidently making a mistake in your work
For many freelancers, your experience and your advice are what you build your business on – whether that’s advice on marketing strategy, sales strategy, finances, supply chain or something else. Clients are often making big changes based on your recommendations.
If one day you accidently make a mistake and give advice that doesn’t deliver good outcomes, this could cause your client a financial loss and leave them dissatisfied.
No matter how meticulous and professional you are, mistakes can easily occur – it could be something as simple as a miscalculation that causes a financial loss for your client.
While some clients may value your relationship and overlook this error, there’s always the risk of a client taking legal action if they’re unhappy with your service. If they do take legal action, it’s likely they’ll try to make a professional indemnity claim against you.
When it comes to avoiding this type of issue, the first piece of advice would be to ensure you’re thorough with all the work you produce, but even that is not always enough to avoid mistakes completely. After all, you are only human. Ultimately, the best way to manage this situation is to protect your business with professional indemnity insurance.
This way, if ever a client does make a claim against you, you’ll be protected financially. You can learn more about professional indemnity insurance here.
As well as having this insurance, it’s a good idea to add a limitation of liability clause to all client contracts. This will limit your business’s risk of financial loss through damages if you are found to be at fault.
4. Miscommunication on what you are delivering
Sometimes during conversations with clients, things can be misinterpreted and your understanding of something can be different to theirs. This could be a misunderstanding on the work you are expected to deliver or the completion date. This misinterpretation could be costly for you, as you may quote them on a project that takes less hours than the scale of project they have in mind.
To avoid this happening and to reduce ambiguity, it’s extremely important that you set out the contract early in writing. Make sure your contract includes all the key terms in plain English.
Clear expectations are key to a successful project and the best way of ensuring these are in place is to set out each parties’ rights and obligations as clearly as possible in writing, before work begins.
In your contract, make sure you include:
- how much time you are expected to dedicate to the project
- any specific days you are expected to work on the project
- what you are delivering
- where you are delivering the services – for example will you need to work on site some days
- the delivery dates for the project and whether it is a hard deadline or an aspirational deadline.
Regarding deadlines, if time for delivery in legal terms is ‘of the essence’, this means that if you miss the deadline, even if only by 10 minutes, you are in material breach of the contract and the other side can terminate the contract and claim damages. If possible, try to make deadlines aspirational rather than of the essence.
Inevitably, both you and your client will approach any ambiguities within a project with your own interests in mind. There’s no doubt that prevention is better than cure, which is why it’s crucial to have a watertight contract in writing from the get-go but in the worst case scenario, if a misunderstanding does lead to a client taking legal action, or if you feel you need to take legal action, having legal expenses insurance can cover you financially when there is a contract dispute.
5. Employee dispute
As your business grows, you may choose to hire an employee or subcontract work to other freelancers.
If you do decide to take on staff, for example if you take on someone parttime to help with your administrative tasks or if you take on a junior full-time, you’ll have a number of legal factors to consider. Much as with clients, to protect yourself from any potential disputes with employees, it’s important to draw up a written contract with your employee outlining all the key terms including:
- hours of work
- place of work
- tasks they will be responsible for
- absence policy (including sickness, compassionate leave and medical appointments)
- probationary period
- notice period and termination of employment
- intellectual property policy
There are certain health and safety standards that you will need to make sure you’re following to avoid any potential legal claims from employees. Your duty of care will include:
- making sure the workplace your employee is working in is safe to prevent health and injury risks
- making sure any equipment they’re required to use is safe and is handled safely
- providing first aid facilities and more.
You can find out more about employer’s responsibilities on the hse.gov.uk website here.
As an employer, Employers' liability insurance is a legal requirement – even if it’s just one employee that you have on a part time temporary basis. If you have an employee and aren’t covered with the minimum of £5m worth of employers' liability insurance if you have employees, you could be fined £2,500 for every day you are uninsured.
Legal guidance for freelancers
For more legal guidance, or to access an employment contract template, visit the Markel Business Hub.
If you’re a Markel Direct customer, you can access the Markel Business Hub for free through your Markel Direct account. Within the Markel Business Hub, you are able to access an employment contract template, further legal guidance, templates and other resources put together by a team of expert solicitors.
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