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The 1099 contract is issued to an independent contractor. Anybody who wishes to sign this sort of contract must be ready to work in self-employment as an independent contractor. These types of contractors might opt to work independently fulltime or part-time. Some work as independent contractors while still in employment. They do freelancing work by the side. Nevertheless, whether you work fulltime or not, you still need to be able to sign the contract that stipulates what you will provide, the amount you will be paid, and the client’s responsibilities in the course of the project. 

One of the most debated issues is on whether to work as an employee or a freelancer

Employees vs 1099s

Freelancers are independent contractors. They are self-employed. There is an advantage to working in self-employment just as there are in working as a full-time employee. Anybody who works as an employee in a 9-5 job cedes a bit of control to the employer. The employee is not fully in charge of any relationship with any of the clients the business serves. On the other hand, an independent contractor is in complete control of the relationship with clients. The contractor determines the direction that relationship takes. 

A fundamental difference between the two is also seen in signing 1099 contract. 

1099 Contract Example
‍Image Credits: letter-templated.org

Employees only have to sign a contract with their employers. Independent contractors, on the other hand, have to sign this contract stating clearly the working relationship they have with their clients. Here, talks of employer-employee relationships are non-existent and unfounded. The contract is fundamental for many issues. First, it defines the role the contractor will play in the project. It also defines the contractor’s responsibilities vis-à-vis those of the client. More importantly, the contract will prove helpful when filing tax returns. The contract provides the proof needed to show that the contractor is truly a freelancer; hence, should file taxes as such.  

The 1099 contract is also good to the clients. It enables them to avoid the following situations: 

  1. Paying employment taxes
  2. Incurring benefits costs

As earlier indicated, self-employed contractors are the only ones who sign the contract. 

How Contractors Benefit from 1099 Contract

The contract is crucial for many reasons. It determines the sort of relationship the self-employed contractor will have with the clients. It also defines the tax structure that will be applicable in this case. The contract helps resolve the issue regarding the type of insurance policies or covers that will be required for the entirety of the project from start to finish. What is more, without this contract, the self-employed contractors will have a difficult time trying to convince anyone of the benefits to which they are entitled. There is no two way about it, signing this contract is equally beneficial to the contractor and client. 

The 1099 contract also has to clarify an important aspect of the client-freelancer relationship – invoicing. It has to delve into this issue. The contract must state when the freelancer will be sending invoices. Added to that is the fact the contract must state the dates when payments for the invoices are due. It cannot afford to leave this matter to personal preferences. How a freelancer will be paid, the payment terms and methods are a few of the most important details a contract must have. Otherwise, it will not be long before the two parties experience a conflict or misunderstanding forcing them to break up their relationship.

The contract stipulates that a contractor is free to finish a job the way he deems fit. The client does not restrict the contractor from doing what he doesn’t want to do to complete the task at hand. A contractor is also free to hire other people to help him complete the job. An employee would never be able to do such a thing without seeking the employer’s permission first. With a contractor, the client is not too interested in how the work is done. At the end of the day, the client simply wants to see the job done according to what was agreed on the contract. 

An independent contractor is free to serve more than one client at a time. In fact, the contract should not limit the contractor to a single client or project. Obviously, the two parties could always work out a contract that addresses the concerns they have. The contract could require the contractor to dedicate himself to the project for many reasons. One of the reasons could be the timeframe involved. The nature, especially sensitivity, of the project, could also require a contractor dedicating his time fully to a single project for some time. The law gives the contractor the freedom to choose if he wishes to take this path though. 

As previously indicated, the contract should clarify the contractor’s rights and responsibilities. 

The business relationship between a contractor and the client is often short-term. The relationship lasts only as long as it takes to finish the project in question. The situation here is different from what is the norm in the employer-employee relationship, which can last several years. The short-term nature of a client-contractor relationship is the result of dealing with projects that need to be completed in a few weeks or months. Rarely does the relationship last more than a year. 

Supports Long-Term or Repeat Business

Obviously, the client can return to the contractor with a fresh project. 

The two parties may be so happy with the initial arrangement that they decide to continue working together for long. However, they will have to sign a new contract with each fresh project. The two parties cannot continue relying on the first contract or agreement they signed. After all, no two projects are similar. The client and contractor have to meet, sit, and debate or discuss the nitty-gritty details of each new project and contract. The one big advantage they have is they already met, discussed and agreed on a few pertinent issues in the past. That background can help them with all future contract negotiations.

The 1099 contract clarifies your rights as a self-employed contractor. It clarifies the fact you are not entitled to overtime. A self-employed contractor is not also entitled to minimum wage, which is a preserve of regular employees as the Fair Labor and Standards Act stipulates. What is more, the Act stipulates that the contractor is not entitled to Workman’s Compensation either. Because of this, the contractor has to take care or assume the responsibility for any injury suffered while working on the client’s project. It is for this reason – and others too – that independent contractors must be insured. 

Without insurance, the contractors could soon be broke and close their businesses. 

Supports Fair Wage

Nevertheless, independent contractors are entitled to a fair wage. It is their right to earn a fair wage for all work or services they render to clients. The wage has to be pre-defined, which is where the 1099 contract comes in yet again. The contractors receive their payments on an hourly or flat rates. A solid and legally binding contract does not leave such weighty matters to conjecture. Instead, it highlights and expounds on them clearly. It does this to ensure that the two parties never go into any kind of misunderstanding related to the issue of fair wages, which the law expects clients to pay their contractors. 

Independent contractors are at-will employees. Many contractors do not want to consider themselves at-will employees. More business owners also do not want to interact with contractors who believe they are nothing more than at-will employees. The reason for this is at-will employees tend to hurt businesses a lot. It hurts businesses because of something known as the Law of Unintended Consequences. The fact the client can terminate the contract at any moment citing the most frivolous of excuses is bad for business. For this reason, contractors should ensure the 1099 contract protects their status for the duration of the project. 

If anything, terminating the contract should be an option that is open for both parties. One party or signatory to the contract cannot have more power, influence, or rights than the other one. The two parties – clients and contractors – should have equal rights. If one party has the right to terminate a contract, so should the other party. It is good for the contract to stipulate the consequences of terminating a contract midway before the project is complete. Without these consequences, any of the signatories could wake up one morning and decide to take a walk. If this happens, would the freelancer be entitled to pay? What about the project? 

However, there are ways in which the status of at-will employees can be good for contractors. 

For example, the status ensures that contractors have the final decision on which client to work for or the project to handle. What is more, under this arrangement, clients cannot control independent contractors the way they want. Clients lack the level of control they normally have with their regular employees. Without this type of protection, nothing would stand in the way of the clients insisting that contractors should only work for them until the project is complete to their satisfaction. Nothing would matter, though, if contractors do not insist on adding a clause within the contract that clarifies these matters. 

Independent contractors have to improve their contract negotiation skills. 

One does not have to undergo any kind of training to be a great negotiator. 

Nonetheless, training is good. Pursue it if you believe it will make you a better negotiator. 

Skills for Negotiating 1099 Contracts

So, what should a self-employed contractor do to negotiate a better contract? 

First, you have to agree on several details with the client. Some of these details include the deliverables and deadlines. Yes, the contract must state clearly the items you will be delivering. What kind of product or service do you intend to provide? How will you offer it to the client? These are just but a few questions the contract has to answer. Read the contract once it is drafted, especially if it is from the client. Check that the contract contains everything you promised to do or offer. Confirm that you understand everything the contract says, especially where deliverables and deadlines are concerned. 

When negotiating, do so from a position of strength. Do not appear too weak or desperate lest the client takes advantage of you. This would mean knowing your worth and the value of the services you provide. Stick to what you are worth. Do not agree to sign a contract that undervalues your worth. Say no to a contract that does not appreciate the importance of the services you provide. You can show the whole world – or at least the client with whom you are negotiating – how valuable you are by asking for the right rates. Do not assent to a contract that does not entitle you to fair wages. 

Refuse to say yes to contracts that require you to put in more work at low rates. 

The negotiation process is a two-way street. It involves both parties. Therefore, make sure your voice is heard. Let the client hear what you have to say about the clauses regarding confidentiality or non-compete. Normally, these clauses are designed to protect the client, especially when a sensitive project is involved. The clauses ensure freelancers do not spread information regarding the project to the whole world. You can also insist on a confidentiality clause to prevent the client from broadcasting your trade secrets with the world. At times, you can ask the client to remove these clauses if they hamper you from working well. 

Lastly, nobody has tied you down to negotiate a 1099 contract you feel is not worth the effort. For this reason, feel free to walk away when you feel it is not what you deserve. Know when the time is ripe for you to walk away. No, when your efforts would be better off doing something different other than sitting down to negotiate a contract that’s not going anywhere. Involve a professional, preferably a lawyer who understands these matters, where necessary. Ask for an explanation or clarification of whatever you are unhappy with on the contract. With this information, you can now approach any contract negotiation for your 1099 work confidently. 

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