Given how pricey the cost of living is these days, some of us are no strangers to looking for extra income on the side. This may come in the form of looking for passive income, working a second part-time job or freelancing.
Freelancing is the preferred form of additional income (or even primary income for some people) as it offers the most flexibility. However, this advantage might actually be its biggest problem as well. Given how flexible it is, most freelancers accept jobs without proper contracts other than verbal agreements or text messages. This may lead to a situation where some freelancers end up not getting paid because their contact person has disappeared or because the company claims that you did not complete the task as per instructions (even though you did).
For the most part, the greatest fear for any freelancer is not getting paid. The avenues you can take to ensure you get paid actually depends on whether the law views you as an employee or a freelancer.
Okay, so how do I know if I am an employee or freelancer?
In most situations, whether or not you are an employee or a freelancer might be quite clear cut. However, there may be situations where it would not be as clear. This is where you need to look at whether you have a contract of service or a contract for service.
If you are thinking that the only difference is in the use of words, you might be in for a shock. There is actually a huge difference between the phrases “contract OF service” and “contract FOR service”.
Contract of service is your typical employee-employer relationship and it is protected under the Employment Act 1955 (“EA 1955”). Section 2(1) of the EA 1955 defines a contract of service as an agreement (in any form) where you both agree to an employer-employee relationship.
Section 2(1) Employment Act 1955:
“”contract of service” means any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee and includes an apprenticeship contract;”
This means that when you are employed, you have a contact of service and you are entitled to all the benefits provided to you under the Employment Act.
A contract for service, on the other hand, is what you have when you are providing a service to someone else. There is no employer-employee relationship between you and the person that you are contracting with. An example of contracts for service is the provision of cleaning services or security services. It may also include, as you guessed it, freelance work.
It goes without saying that without an employer-employee relationship, you would not receive certain benefits such as EPF and SOCSO.
Just because you think you are freelancer, doesn’t mean that you are actually a freelancer
Have you ever been in that situation where you think that you are someone’s boyfriend but thennnnn...you find out that you are not. The same goes for being an employee or a freelancer. There might be situations where you think you are a freelancer (or an employee) only to find out that you are actually not one. This is because the law doesn’t look at the label you give yourself but it looks at the substance of your relationship with your boss.
The courts would have to decide whether or not you had a contract of service or a contract for service by applying certain tests. Currently, there are actually six different kinds of tests:
1. Control test
2. Independence test
3. Integration test
4. Mixed test
5. Economic reality test
6. Mutual obligation test
We would not be going into a detailed explanation for all the tests above as it is not very relevant to the subject at hand but we will do so in a future article.
So, assuming the law finds that you are an employee, you can take action against your employer through the Employment Act (if you are earning below RM2,000) or through your employment contract in Malaysia’s Industrial Court. It is also a point to note that the Employment Act only applies to Peninsular Malaysia.
However, if you are a freelancer, the next thing you would want to know is...
What happens if I get cheated while working on a freelancing project?
Here is where you get worried, right? If the Employment Act or Industrial Court doesn’t protect you, then what would? The answer is…
your contract. Most freelancers do not have contracts but you should consider drawing up a simple one or at the very least, to have certain important points down in writing. This is because you can rely on your contract to sue for breach of contract. Regardless of whether or not you are a freelancer or an employee, your contract would always be your most valuable weapon (or shield) in case of any disputes.
Before you begin any work for anyone who is hiring you for freelance services, be sure to agree on core terms such as how much would they pay you, how they would pay you (whether upon completion of the project or by completion of certain stages of the project. It might even be worthy to discuss methods of payment such as by cheque or transfer) and how the work would be carried out. If possible, at least try to have this in email as any form of writing is better than nothing in court.
Every freelancing job would have its own needs and customisation so it is best to be sure to negotiate well, have a contract written down (oral contracts can be formed but it might be more of a hassle to determine who is telling the truth without written evidence). Also be sure to always read your contracts before signing them because you can’t argue that you didn’t read the contract and therefore, you are not bound by it.
[READ MORE: Is a promise legally binding in Malaysia?]