Thinking of going freelance? Read this
“I don’t pay salaries, I pay invoices” was a line which set Twitter ablaze. This is hardly a controversial statement, but the subsequent replies were more revealing, people sign contracts without fully understanding the contents of it. People were signing up for freelance gigs but were under the impression that this was full time employment.
Understanding what you’re signing up for could be the difference between becoming a successful entrepreneur or a Bedouin concubine. Let’s help you navigate the terms of your contract.
Understanding your working arrangement
If you’re being cautious when taking the leap into freelancing, taking on a fixed term contract is a good middle ground of having some benefits of a permanent employee compared to full on freelancing.
Here’s a comparison of the two:
- Let’s say you decide to create content for OnlyFans and charge a monthly subscription, this would be seen as a sort of “fixed term” arrangement, since you are delivering a service that is predetermined.
- If the scope of your work has not yet been determined and the requirements are highly likely to change, the time to complete this work may vary. In this situation, a Freelance arrangement would be most suited.
- Even though you are not entitled to any annual or sick leave, some fixed term contracts include allowances for “leave”, so you can bill for those days even if you have not worked.
Understand your billing terms
What you can bill your client for is determined in advance in the terms of your contract. Here are the two most common billing structures.
- On a Monthly Flat Rate agreement, even though the monthly rate is fixed, you are not guaranteed that income, you only get paid for the time that you work.
- When working overtime hours, remember that you’re not obligated to work overtime. But if required, ensure that you’re not working endless “ghost” hours that you can’t bill for when on a fixed fee contract.
- On the flip side don’t abuse this if you’re paid by the hour, building trust with your client begins with being honest about the time you work.
What should my rate be?
Understanding how your income is broken down is key to negotiating a contract that is profitable. When switching between permanent and hourly roles, it is likely that you will be offered an hourly rate that exceeds what you earn in permanent roles. This is to cover for the lack of benefits in contracting roles.
Let’s take a look at the numbers:
In this scenario, you’re being paid R 50 000 a month in your permanent job. You’ve been wanting to test the entrepreneurial waters. An opportunity to take on a 1 year project with the offer of R 400 per hour is presented to you. A gross monthly income increase of R 17 200 a month (R 206 400 p.a.) would be amazing right?
If this is the only comparison you have done, you may inadvertently be taking a pay-cut. Let’s take a deeper look at these often overlooked factors:
- After factoring downtime and incentives, R400 per hour is not enough to cover a monthly salary of R 50 000.
- For the sake of clarity, Bonus and 13th Cheque is zero when billing hourly, since incentives are rarely offered when contracting. Similarly, Annual / Sick Leave and Public Holidays are included as part of your income for permanent roles, so these are also zero.
- Leave, public holidays and forced closures (e.g. clients closing over the festive period) is where we get tripped up the most. Unless you want to be “that guy” who’s always at the office, you need to ensure that you have enough allowance for downtime.
- For those of you who don’t receive bonuses and / or 13th cheques, the decision to take up a contract is much easier. But if you have been receiving incentives and you were heavily relying on this, then you would need to factor this into your negotiations.
I understand how overwhelming these situations are, having experienced this myself. A contract is put in front of you. You look at the potential earnings, you didn’t think you could ever earn this much. Your first inclination is to sign immediately out of fear that you may pass up the opportunity.
Tell your prospective client that you’ll get back to them the next day, sleep on it if needed. A cool head and a warm body is required to make big decisions.