How do you legally onboard a freelance developer?

How to Legally Onboard a Freelance Developer

Hiring a freelance developer can be an excellent solution for businesses seeking specialized skills or additional support for short-term projects. However, it's crucial to ensure that the onboarding process is legally compliant to protect both parties and avoid potential legal issues down the line. In this article, we'll explore the key steps to legally onboard a freelance developer in the United States. Legal clarity can benefit from a Data Processing Agreement.

Determine the Worker Classification

The first step in legally onboarding a freelance developer is to correctly classify their employment status. The Internal Revenue Service (IRS) has specific guidelines to determine whether a worker should be classified as an employee or an independent contractor (freelancer). You can refer to the to evaluate factors such as behavioral control, financial control, and the relationship between the parties.

Obtain an Employer Identification Number (EIN)

If you plan to hire multiple freelancers or independent contractors, it's recommended to obtain an Employer Identification Number (EIN) from the IRS. An EIN is a unique nine-digit number assigned by the IRS and is used for tax reporting purposes. You can apply for an EIN online through the .

Draft a Freelance Contract

A well-drafted freelance contract is essential to clearly define the terms of the engagement, responsibilities, ownership of intellectual property, confidentiality, and payment terms. You can find on our website that comply with state and federal laws. Be sure to review and customize the contract to fit your specific needs.

Verify Work Eligibility

As an employer, you are required to verify the work eligibility of all employees and freelancers hired in the United States. This process involves completing the Employment Eligibility Verification Form (Form I-9) and reviewing acceptable documents that establish the worker's identity and employment authorization. The provides guidance on the I-9 process.

Obtain Necessary Licenses and Permits

Depending on the nature of your business and the services provided by the freelance developer, you may need to obtain specific licenses or permits. For example, if the developer will be working on software or applications related to regulated industries, such as healthcare or finance, additional licenses or certifications may be required. Check with your state and local authorities for applicable regulations. This is often governed by a SaaS Agreement.

Comply with Tax Obligations

As a business hiring freelancers, you have certain tax obligations to fulfill. While you are not required to withhold taxes for independent contractors, you must issue a Form 1099-MISC to any freelancer you paid $600 or more during the tax year. Additionally, you may need to pay self-employment taxes and other applicable taxes. Consult with a tax professional or refer to the for guidance.

Protect Intellectual Property

When working with freelance developers, it's essential to protect your intellectual property rights. Include clauses in the freelance contract that clearly define ownership of the work product, confidentiality obligations, and non-disclosure agreements. Additionally, you may want to consider registering copyrights, trademarks, or patents for any proprietary software or applications developed by the freelancer.

Maintain Records and Documentation

Keeping accurate records and documentation is crucial for legal compliance and tax purposes. Maintain copies of the freelance contract, invoices, payment records, and any other relevant documentation related to the engagement. These records may be required in case of an audit or legal dispute. This is often addressed through a SaaS Agreement.

By following these steps, you can ensure that you legally onboard a freelance developer while protecting your business interests and complying with applicable laws and regulations. Remember, it's always advisable to consult with legal and tax professionals to ensure you are meeting all requirements specific to your business and location.

Do you need a contractor agreement?

Yes, it's highly recommended to have a written contractor agreement when hiring freelance developers or any independent contractors. A well-drafted agreement helps protect your business and clarify expectations on both sides. It should outline the scope of work, deliverables, timelines, payment terms, intellectual property rights, confidentiality, and termination conditions.

While not legally required in most cases, a serves as evidence of the working relationship and can prevent misunderstandings down the line. You can find free templates from reputable sources like the or consult with an attorney for a customized contract.

What about IP ownership?

IP ownership is a crucial consideration when onboarding freelance developers. By default, the freelancer owns the intellectual property they create unless a written agreement states otherwise. To ensure your company retains ownership, include an "IP assignment" clause in the freelance contract. This clause should clearly state that any work product created by the freelancer during the engagement belongs to your company. For more guidance, consult or refer to the (p. 42-47).

Should you get proof of insurance?

Yes, it's highly recommended to request proof of insurance from freelance developers before engaging them. This protects you and your company in case of any mishaps or liabilities during the project. Freelancers should carry general liability insurance and professional liability (errors & omissions) coverage. Request a Certificate of Insurance naming your company as an additional insured on the general liability policy. For more details, see or consult .

Can you convert them to an employee?

Converting a freelancer to an employee is possible, but it requires careful consideration. Freelancers are independent contractors, while employees have different legal rights and obligations. Before making the transition, review the guidelines on employee classification from the U.S. Department of Labor.

It's crucial to have a comprehensive outlining the terms, benefits, and responsibilities of the new role. Consult with legal counsel or HR professionals to ensure compliance with labor laws and proper reclassification. Open communication and mutual agreement are key to a smooth transition from freelancer to employee.

What's the tax treatment?

When onboarding a freelance developer, it's crucial to understand the tax implications. As an independent contractor, the freelancer is responsible for paying their own taxes, including self-employment tax. You, as the hiring party, are not required to withhold taxes from their payments. However, you may need to issue a if you pay the freelancer $600 or more in a calendar year. This is often addressed through a Shareholders Agreement.

It's advisable to consult with a tax professional or refer to the to ensure proper tax treatment and compliance. Misclassifying workers can lead to penalties and legal issues, so it's essential to get it right from the start.

At Genie AI, we make it easy to create bespoke legal documents that save time and provide the correct structure, no matter what legal document you need to create or review. Whether you're a business, lawyer or individual, try Genie AI today to simplify and streamline your legal drafting.