6 Reasons Why the Self-Employed Should Never Work Without a Contract

3 Mins read

The number of self-employed Americans is constantly rising. A new report estimates that there are now 40.8 million self-employed Americans who are self-employed, and that number is only going to keep going up as time goes on. But the self-employed are potentially walking into a trap if they are not prepared.

They need contracts if they’re going to avoid dishonest employers. In fact, a contract is the main form of protection they have. With that in mind, here are six reasons why you should never work without a contract if you are self-employed.

self-employed contracts

Licensed Image from Shutterstock – By Michal Chmurski

Are You Really Self-Employed?

The first reason is that in a legal sense, unless you can prove otherwise, you’re considered to be an employee. This has come to light in a number of employee independent contractor disputes. Without a contract your status is essentially self-proclaimed.

A contract protects your duties and your position within a project. Crucially, it ensures that anyone will know that you’re a self-employed contractor.

This may not seem important now, but in a legal dispute it can become extremely important.

Protecting Yourself from Employers Who Don’t Pay

The biggest threat you will face is employers who won’t pay you for the work you performed. A contract will specify your duties, what’s expected of you, and a specific end to the project you’re employed for.

sign contract before working

Licensed Image from Shutterstock – By NothingIsEverything

Without a contract, someone can turn around and say that the project is not finished or you haven’t completed enough work. Some employers may even claim that the work has not been done to the previously agreed upon standard.

A contract will be your best defense against this because there’s absolutely zero uncertainty about the terms of the professional engagement.

The Freedom to Decide the Relationship in Advance

In the US you have to be able to define your professional relationship before work begins. Otherwise you’re essentially committing to the assumption that the person will pay you for the work and not pile on more work and extra clauses later on.

Remember that as an independent contractor you have no real rights against an employer. Without a contract it’s extremely difficult to prove anything in a court of law. By establishing a secure contract you create a level of certainty that will give both parties peace of mind.

It also works both ways. A self-employed contractor could demand payment by stopping half way through the project, thus putting the employer in a difficult position.

Knowledge of Bonuses

The self-employed often receive bonuses for completing work within a specific period of time. They may also receive an extra bonus for completion of the project. These bonuses can turn an unprofitable project into an otherwise lucrative one if they can complete the work to the required standard.

receive bonuses from employer

Licensed Image from Shutterstock – By Brasil Creativo

Thus, a contract makes sure that these bonuses are established both for employers and self-employed contracts, and can’t be changed without prior consent later on.

This is necessary for making sure that everyone knows where they stand.

Which State Law Applies?

There’s no specific Federal law governing employment contracts for the self-employed. Every state has its own regulations. This can make things tricky when you’re working across state lines.

A contract stipulates which state’s law you’re abiding by. You may choose either your own state or the state of the company. The point is that you’re determining the rules you’re playing by within the terms of the contract.

Establishing Expectations

The self-employed know that the biggest problem they can encounter is an issue with expectations. The expectations of both parties can conflict with each other if not clearly spelled out. The contract lays out these expectations in advance so there’s no conflict later.

The power of a contract for independent contractors is that it avoids conflict later on. It avoids misunderstandings and it solidifies the relationship in advance, as detailed above.

Last Word – Getting it Right the First Time


Licensed Image from Shutterstock – By fizkes

Self-employed work contracts are not just a legal barrier against an immoral employer who may refuse to pay at the end of the project. They also help to establish the relationship and to smooth out the terms and expectations of the project as it moves forward. Thus, you can always refer back to the contract if any disputes arise.

You should never consider working for anyone who refuses to commit to a formal contract with you. You’re risking your time and effort by doing so.

Have you ever worked as a self-employed contractor without a formal contract before?

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About author
Ryan Kh is a big data and analytic expert, marketing digital products on Amazon's Envato. He is not just passionate about latest buzz and tech stuff but in fact he's totally into it. Follow Ryan’s daily posts on Catalyst For Business.
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