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Many designers seek full-time staff positions, but it's also
possible to build a very successful career as a freelancer. In
fact, the U.S. Department of Labor reports that three out of ten
designers are self-employed. Some independent designers work
directly with business clients, submitting fixed-fee proposals for
specific projects. Others prefer to work behind the scenes as an
additional resource for established creative firms. Most design
firms and agencies cope with temporary increases in their workload
by bringing in outside designers on a sub-contractor basis. A
freelancer with very specific skills is brought in to help with a
particular phase or aspect of a project and the freelancer is
usually paid a negotiated hourly rate.
If you are doing freelance work, remember that you are a
one-person business. Design firms and agencies will make gross
payments to you-that is to say that no taxes or other amounts will
be withheld. You are responsible for all of your own taxes,
insurance and other business issues. Without a clear understanding
of this, it's easy to get into trouble-particularly with the
Internal Revenue Service.
The IRS pays special attention to independent contractor
relationships. Unfortunately, it's not unusual for hiring companies
to deliberately misclassify workers as freelancers rather than
employees in order to avoid paying employer taxes. To determine
whether an independent contractor really should have been put on
the payroll, the IRS looks at 20 factors relating to behavioral
control, financial control and the overall nature of the
relationship between the parties. A general overview of these
issues can be found in IRS publication 1779, “Independent
Contractor or Employee,” which can be downloaded from www.irs.gov as a PDF file. The factors
themselves are listed below (along with some notes about how they
might be applied to design).
When you use these factors to analyze your own situation, you
may find that your answers are a bit contradictory. Some things
might point toward an employer/employee relationship, while others
support your independence. It's important to understand that no
single factor will determine your status. All of the factors need
to be weighed against each other as if on a scale. The IRS will
look to the majority of evidence. With this in mind, you need to be
prepared by structuring and documenting your activities in such a
way that the weight comes down on the side where you want it to
It's a good practice to separate your business income and
expenses from your personal finances. Opening a business bank
account makes this easier. Like any small business, you will also
need to consult with a CPA for tax advice and the preparation of
your tax returns. Since you are not on anyone else's payroll, be
aware of these issues related to taxes and benefits:
Benefits you have
You will be covered by Social Security for the self-employed
because it is required by law. You must pay both the employer and
employee portions. Your CPA will help you to calculate the amounts
and meet the deadlines.
Benefits you don't have unless
you provide them
Vacation and sick time
Workers compensation insurance
(The requirements for workers comp vary by state, but it is usually
not required until you hire another person to work with you.)
Retirement planIndependent contractor
When you perform freelance services for a design firm, a number
of different documents will be generated over the course of the
relationship. Your relationship will start with a general document
called an independent contractor agreement. All large design firms
and agencies will have one that they ask you to sign before any
services are performed. Typically, this agreement only needs to be
discussed and signed once because its purpose is to describe the
underlying nature of the relationship, rather than to describe any
The wording of the agreement will vary a bit from firm to firm.
The essential contents will include: a reiteration of your status
as an independent contractor (including the fact that you are
responsible for your own taxes and business expenses), a commitment
on your part to maintain the confidentiality of all information
shared with you, a guarantee from you that the work you deliver
will be original and will not infringe on the rights of any third
parties and an assignment by you of intellectual property
Intellectual property rights are negotiated differently when you
provide services directly to business clients. There's a good
reason for this. Design firms need to acquire all rights from their
team members-whether employees or freelancers-because they in turn
will be selling some or all of those rights to their business
clients. Obviously, design firms cannot sell that which they do not
This assignment of rights is done with work-for-hire language.
Work-for-hire is part of U.S. copyright law. The standard
definition of work-for-hire is a work created by an employee as
part of his or her job. Copyright belongs to the employer, who is
recognized as the legal author. (One implication of this is that a
departing employee should always ask before taking anything that
might be considered intellectual property. Even though you have
created something, you need your employer's permission before you
can add it to your portfolio.)
There is a second definition that is important to freelancers.
Work-for-hire can also include a work specially ordered or
commissioned, if the parties agree in writing that it will be
considered a work-for-hire. Work-for-hire language might show up
once, in the independent contractor agreement signed at the
beginning of the relationship, or it may be stated separately on
each project purchase order that is issued to you.
Some firms might also attach an addendum or exhibit to the basic
independent contractor agreement to describe the type of services
that you will be providing and how you will be compensated. It's
more common for that information to appear later, in project
The last of the new relationship documents that you need to
complete and sign is a form W-9. Each design firm and agency that
sub-contracts work to you will provide you with a blank one (they
can also be downloaded from www.irs.gov). Your completed W-9
officially notifies the design firm what name and federal tax
identification number (usually a personal Social Security number)
should be used for you in their records.
Now that you've been set up as a resource, assignments can be
given to you. Design firms plan out project budgets very carefully.
When a portion of a project is assigned to you, the details will be
spelled out in a purchase order. The purchase order confirms
specific information about the project, its schedule and deadlines
and your individual budget-probably stated in hours as well as
dollars. In most design firms and agencies, the purchase order will
be issued to you by a project manager or producer.
As you perform services, you will periodically request payment
by submitting invoices. On large projects, you should negotiate to
submit bills every week or two (for your own cash flow purposes, it
should never be less than monthly). You will appear as a vendor on
the records of the design firm. All payments to you will be made
through their accounts payable system, which means that there will
usually be a delay of 15 to 30 days. Individual invoices should
reference the relevant project purchase orders, and can include
whatever additional detail the design firm requests. However, you
should not be asked to fill out the design firm's internal
timesheets-it is only appropriate for their employees to do so.
At the end of each year, the design firms that you have worked
with will add up the amounts paid to you (not the total of your
billings to them, but the total of their actual checks to you). If
they have paid you $600 or more during the calendar year, they must
send you a completed form 1099-MISC by January 31. If you've worked
on projects for lots of different firms, you'll accumulate a big
stack of 1099 forms. Be sure that you attach all of them to your
tax return-the IRS has already received duplicate copies and that
information will be compared to what you file.
A few states have additional filing requirements related to
independent contractor relationships. You'll need to check with
your own state government to learn about these. For example,
California requires the company purchasing freelance services to
give the state advance notification (by filing form DE-542) of
individuals who will receive more than $600.
Shel is a graphic designer who is active on the business side of professional practice. He has solid experience managing the operations of leading creative firms and guiding them through periods of accelerated growth and rapid change. He has served as director
of operations for MetaDesign San Francisco and as vice president of operations for Clement Mok. He provides management consulting services to a range of creative firms in both traditional and new media. Shel has served on the national board of the Association
of Professional Design Firms and as the president of AIGA San Francisco. He has written and lectured on many topics related to design management and teaches Professional Practice at the Academy of Art in San Francisco, the California College of Arts, and the
University of California.
Now that you’re an independent businessperson, you are required to properly upkeep your own income taxes. Start here with an overview of tax issues for entrepreneurs.
Section: Tools and Resources -
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