Do I need an employment contract for freelancers? Here’s when you should (and shouldn’t)

If you’ve worked with freelancers before, you’ve probably asked yourself this question: Do I really need to give them a contract? After all, they’re not employees, so is it just extra admin, or does it actually protect your business?

For small and medium-sized businesses (SMBs), the line between hiring a freelancer and employing someone full-time can feel blurry. But when it comes to contracts, clarity is your best friend. Let’s break down when you should have a written agreement and when you can get by without one.

Freelancers are reshaping the workforce

Freelancing isn’t a side hustle anymore: it’s now a major part of the global workforce. In fact:

• Freelancers make up about 12% of the global workforce, with estimates ranging from 154 to 435 million people globally.
• Freelancers contributed over $1.27 trillion to the U.S. economy in 2023.

For SMBs, that means the chances of hiring freelancers regularly, whether that’s for marketing, design, web development, or any other requirement, are only going to increase. Having a plan in place for contracts now will save you headaches later.

What’s the difference between an employee and a freelancer?

Before we get to contracts, it’s important to know how freelancers differ from employees:

• Employees work for your business on a regular basis. You set their hours, they use your tools or equipment, and you control how they do the work.
• Freelancers (also called independent contractors) are self-employed. They work on specific projects or tasks, often for multiple clients at once. They set their own hours, decide how to do the work, and usually provide their own tools.

Why does that matter? Because employment contracts are usually required by law when you hire employees, but freelancer agreements are not legally required in most places.

That said, skipping a contract can leave your business exposed to payment disputes, intellectual property issues, or potential tax or compliance risks.

Even if a freelancer seems like a low-risk hire, a written agreement helps protect your business if anything unexpected happens.

When you should use a freelance contract

Even if it’s not required by law, a contract with a freelancer is a smart move in many situations. Here are five times when you definitely should have one:

1. When the project involves confidential information

If the freelancer will be handling sensitive business data (like client lists, financial details, or proprietary processes) you need a written agreement. It should cover confidentiality and data protection obligations. A non-disclosure agreement (NDA) can also be used for this purpose.

2. When intellectual property (IP) is involved

Who owns the work when it’s done? Without a contract, the freelancer might legally own what they’ve created. This happens more often than you’d think, especially with:

• Logos
• Marketing copy
• Software or websites
• Photography or video assets

A proper contract should clearly state that the work belongs to your business once completed and paid for.

3. When you want to set clear payment terms

A freelance contract locks in expectations about:

• How much you’ll pay
• When you’ll pay
• What happens if deadlines aren’t met
• Whether revisions are included

No more awkward emails about invoices weeks after a project’s done. And considering that U.S. freelancers earn an average of over $99,000 per year, these are professional relationships that deserve professional documentation.

4. When you want to avoid disputes

Freelancer relationships can go sideways if there’s no agreement about scope, deadlines, or deliverables. Having a signed document you can refer to protects both sides. It can also save you time, legal hassle, and potential damage to your brand reputation.

5. When the relationship will be ongoing

If you plan to work with the freelancer regularly, a solid contract makes sense. It protects the relationship, sets expectations, and helps you build a longer-term partnership.

Why it matters: Legal risks for small businesses

Many small businesses assume freelancer contracts are optional, but skipping an agreement can open the door to unnecessary risks. One of the biggest issues is misclassification. If you treat a freelancer too much like an employee (setting strict hours, requiring them to work only for you, and so on) you could face tax issues or legal trouble under employment laws.

A clear contract helps define the relationship properly. It sets expectations, outlines responsibilities, and can provide protection if disputes arise over payment, deadlines, or intellectual property.

Think of it as the foundation of a professional working relationship — one that protects both you and the freelancer.

When you might not need a freelance contract

There are some situations where you might not need a formal written contract, such as:

• Tiny, one-off jobs (e.g., a $50 logo tweak)
• You work with someone you’ve used regularly and already trust, with clear email trails spelling out the details.

But even then, a simple agreement can save misunderstandings. It doesn’t have to be a 20-page legal document, just something that covers the basics like the scope, deadlines, ownership, and payment.

Not sure where to start? Build your contract the easy way

If you’re not sure how to draft a contract — or you just don’t have time to pull one together from scratch — using a guided generator or a pre-built template is a smart way to save time and avoid mistakes.

Start with our employment contract generator if you’re hiring an employee. It’s designed to walk you through the key sections step by step, making sure you cover all the important details:

If you’re hiring a freelancer or contractor, we’ve also created a free, customizable freelance contract template. It includes the essentials you need to get started.

With either option, you can adapt the document to your needs. It doesn’t need to be complicated, but it does need to be clear. Templates give you the structure, but your input gives it the context.