Q: How Do I Terminate an Independent Contractor / Freelancer?
Learn how to terminate a project with an independent contractor, freelancer, or consultant.
Sometimes a business’s needs change, and the project work is no longer needed. Perhaps a project isn’t working out in the way intended, or maybe deadlines for deliverables have been missed. Regardless of the reason, you need to terminate a project with a freelancer before completion. So how can you do this?
Terminating Versus Firing
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Your company’s relationship with a freelancer or independent contractor is like that with your vendors, rather than your employees. Your freelancers are self-employed and work for themselves, not for your company. So unlike an employee who has an employment relationship with your company, you are not firing a freelancer when you end a project early. Instead, you are terminating the contractual relationship you have with the freelancer or contractor.
How to terminate a freelancer
The first step is to review the terms in your contract, either an Independent Contractor Agreement or Master Services Agreement (MSA). If you don’t have a contract, you’ll need to have a conversation with the freelancer or contract to discuss the termination.
Terminating with an Independent Contractor Agreement / MSA
Your Independent Contractor Agreement or MSA with your freelancer should include terms that will specify when and how your company can terminate the contract. Typical scenarios include missed deadlines and work not meeting specifications. Your terms may also include an option to terminate without cause – for example, if your company’s situation or needs change, you may want to discontinue the work before completion. Notice requirements are also usually included in contracts. The notice requirement specifies the number of days (or longer) required before terminating the contract.
Once you’ve reviewed the terms, you should notify the freelancer or contractor in writing to provide the termination notice. Ensure that you are following all the terms as specified, otherwise you could create liability risk for your company.
Note that you can also terminate Work Orders or Statements of Work. For example, you may need to end a project before completion, but still want to work with the freelancer in the future. In this case, you would only terminate that specific Work Order, and keep the overall contractual relationship.
Tip: If there is an issue with the work product, make sure that you have already provided detailed feedback to the freelancer in advance so he / she had a chance to rectify the issue first before initiating termination.
Terminating without a Contract
Suppose you don’t have a contract governing the work for which you have engaged a freelancer. In that case, you’ll need to discuss the situation with the freelancer and agree upon good faith terms for ending the relationship. You’ll at least need to compensate the freelancer or contractor for all work completed to date at the time of the discussion. Document the agreed-upon good faith terms in writing. These terms may include make-goods for any work product issues.
As part of the termination, your company should pay for any work completed as of the termination date, along with hours worked. If there is a dispute over what work or hours should be compensated, consult with your legal counsel.
Wrongful Termination of Freelancers and Independent Contractors
Suppose your company breaches any contractual terms when terminating a freelancer or independent contractor. The worker can sue your company for wrongful termination. This liability risk is why you must precisely follow all contractual terms, and your company should pay for all provided services.
There’s a possible second scenario in which the freelancer or contractor could sue your company. This situation occurs when a freelancer or independent contractor has been misclassified. In this case, the worker should have been classified as an employee rather than a freelancer or contractor. Misclassification results in liabilities and penalties due to violations of tax laws.
Simplify Contractor Management with Liquid
Liquid’s onboarding process includes all the critical steps you need to complete — including executing Independent Contractor Agreements. Liquid helps you manage compliance requirements. Plus, setting up detailed Work Orders for every project is a breeze. Ready to make freelancer and contractor management easy?
Ready to simplify your company’s contractor compliance management with Liquid? Try Liquid today.
Updated: May 13, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.