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Gig work is on the rise, with freelancers expected to make up over 50% of the US workforce by 2027.
While flexibility is a major draw for this type of work, there are still regulatory obligations that freelancers have to follow. These can include obtaining a freelance business license.
Whether you're an experienced freelancer or just beginning your journey, understanding the importance of this license is crucial.
Freelance business license requirements depend on what you do and where you work. Even if it’s not required for your specific situation, a freelance business license can offer many advantages, such as increased credibility and professionalism.
If navigating the legal landscape seems daunting, you’re not alone. With the right information, you can ensure that your freelance career stands on solid legal ground.
This article breaks down what a freelance business license is, who needs one, and how you can go about getting one.
A freelance business license is a permit that allows you to operate legally as a freelancer. It demonstrates that you’re qualified to perform your professional duties and adhere to local regulations.
There are many types of freelance business licenses:
A professional license is usually required for individuals bound to regulatory standards, such as lawyers and engineers.
Business or trade licenses offer authorization to conduct operations within a specified area.
Jobs such as hairstylists or massage therapists require an occupational license.
If you’re a freelancer working from home, you may need a home occupation permit to conduct business legally and stay compliant with local zoning laws.
A sales tax permit might also be necessary to collect and pay taxes on your goods or services.
The Small Business Administration (SBA) has a list of additional permits that may be required for your freelance job. This is particularly relevant if you work in the radio or television broadcasting or transportation and logistics industry. Review this information carefully to ensure you’re fully informed of any obligations you may have.
Not all freelancers are required to have an independent contractor license. It depends on the type of business, the services you provide, and the location of your operations.
For instance, let’s say you’re a freelance writer working under your own name and reporting your earnings as personal income. A business license isn’t required in this case.
However, a Doing Business As (DBA) registration is necessary if you’re running your freelance business under a name other than your own.
If you plan to sell your services, you might need to register with the state you’re working in.
A license is also usually required if you’re running a business regulated by the government, like a food truck or daycare center. You may also need a special permit to engage in physical labor and use operational tools.
Nearly half of global freelancers provide skilled services, and a business license is required for certain specialized industries, including healthcare, accounting, therapy, social work, real estate, and the financial and legal fields. You may also need to register with the appropriate professional board or association to get insurance coverage.
Freelance business license requirements can vary by country, state, or region. Most US states don’t mandate business licenses for independent contractors, but some, such as Alaska and Washington, do.
Certain localities also enforce licensing requirements. This is particularly common in cities or towns with a business license tax.
If you live outside the US, check your local licensing laws carefully. Many countries, including Australia, the Philippines, and Ukraine, require freelancers to get business licenses.
If you’re a freelancer who works remotely, there may be local zoning regulations around running your business from home. Residential buildings can be especially strict in this area.
To clarify the required licenses and application process for your situation, consult your local government website. Or, if this information is unavailable online, contact your local authorities directly.
There are many benefits to obtaining an independent contractor license. Here are a few of them:
Many people want to hire a reliable professional to fulfill their service needs. Finding out that you don’t have a license can leave people hesitant to hire you. They may have concerns about your abilities or worry that you’re a scammer or fraudster.
By obtaining a freelance business license, you help your clients feel reassured and confident in their decision to work with you. It demonstrates your ability to deliver high-quality service and dedication to customer safety. This creates the perception of a trustworthy and credible business.
At the same time, obtaining a business license can make it easier to promote yourself and reach a broader client base.
A freelance business license helps ensure you remain compliant with any legal requirements. It protects you from potential legal implications, penalties, or fines that can arise from non-compliance.
In addition, a freelance business license secures your assets from business-related debts or legal liabilities. This is particularly valuable for freelancers who operate in high-risk industries.
By following the relevant laws and regulations, freelancers reduce the risk of facing product liability claims or injury lawsuits.
A business license encourages timely tax payments, protecting you from potential surcharges and penalties. This ensures smoother business management and minimizes the chances of legal complications. A freelance business license also simplifies the process of tracking financial transactions, leading to more accurate tax reporting. You’ll typically become eligible for tax deductions too, potentially reducing your overall tax burden.
Finally, tax payments serve as proof of earnings. This is necessary for transactions like loan applications and credit card approvals. Not having a license can make it difficult to prove your income and hold you back from these opportunities.
The consequences of not using a freelance business license depend on the type of business itself.
If your freelance job requires a business license, there are legal ramifications for failing to comply. These can range from fines and penalties to even arrests in extreme cases.
For digital nomads working abroad without a license in a country that requires one, certain countries have harsher penalties than others.
The absence of a license also puts you at a higher risk of lawsuits, as unsatisfied clients may view your lack of a license as fraudulent. In legal disputes, the court is more likely to favor the opponent if you lack proper licensing.
Taxes are another concern. Failing to meet self-employed tax obligations can lead to tax evasion charges. And when you don’t spend money on licensing or taxes like other businesses, this lowers your profits.
In addition, there is potential reputational damage to consider. Getting negative press for operating without a license can cause customers to question your credibility and trustworthiness. It can be extremely challenging to recover from these incidents.
In many fields, working without a license also poses risks to public safety. For instance, if you’re an unlicensed cosmetologist who lacks proper training, you may accidentally spread lice to your clients. You’ll be fully liable for any harm you cause.
Further to these, a lack of a business license can lead to business disruptions, especially if you work in a jurisdiction that requires a license to distribute specific products or bid on certain opportunities. And if your business is shut down for non-compliance, you’ll lose revenue as you work to get back on your feet.
The type of independent contractor license you need depends on your freelance job. It’s important to conduct thorough research to understand your circumstances and professional requirements. Make sure to check locality-specific regulations, as well.
Typically, a state business license is sufficient for freelancers. However, if your services go beyond standard freelance offerings (such as design, sales, or legal work), then you might need additional licenses. These could include local, professional, or occupational permits.
The SBA's “Permit Me” tool breaks down information for your ZIP Code and industry to help you learn the requirements for providing services in your area.
Also, be sure to consider your business structure. A sole proprietorship works well for solo ventures with minimal legal exposure. And as mentioned, a DBA is needed if you operate under a different name than your own.
A limited liability company (LLC) is best if you plan to expand and hire employees. If you work in a high-risk field, an LLC offers extra legal protection in the event of an incident.
Bilingual, creative, and copywriting services are experiencing significant growth in the freelance space. Even if it’s not required for your field, a freelance business license can be a great way to stand out among the competition.
Before starting your freelance career, seeking guidance from an expert like Remote can help you avoid penalties and obstacles along the way.
The cost of a freelance business license can range from $50 to several hundred dollars. The fee depends on where you’re operating your business, with varying costs across different cities and states. You can typically expect to pay a processing or filing fee for your license application, along with the cost of the license itself. This could be an annual fee or a one-time expense.
There are also other associated costs to consider. If your license has an expiration date, for example, you’ll need to budget for renewal expenses. You should receive a renewal letter from your professional body letting you know that your license is about to expire. Make sure to stay up-to-date on these deadlines to avoid fines and other legal issues.
If your business is structured as an LLC or corporation, you might need to pay additional fees to file with the Secretary of State. For those established as a sole proprietorship, there aren’t usually other expenses beyond the licensing costs.
Expanding your business can also increase your financial obligations. For example, a Delaware state business license costs $75 annually. However, there is a $25 charge for each additional business location.
Since costs can vary so widely, the SBA recommends consulting with the relevant issuing authority to get clarity on what you can expect.
The process for obtaining a freelance business license will depend on your type of business. However, it generally starts with gathering the necessary information. This includes proof of address, your business name and description, and any relevant qualifications.
If dealing with all the paperwork feels too overwhelming and time-consuming, you can hire a legal agent to streamline things. Most states also offer online registration forms that speed up the process.
Next, complete the license application, pay any required fees, and submit. In some states, you may need to wait for approval. Make sure to respond promptly to any additional requests you receive along the way. Once approved, you can officially obtain your license. This grants you legal authorization to operate.
Typically requires registering for a general business license with the city or county
If selling products, a sales tax permit from the state may also be necessary
Must register with the local Ordnungsamt to obtain a trade license (Gewerbeschein)
Additional registration with the Finanzamt to handle taxation is necessary
Local business licenses are required. in some provinces. Additional certification may be needed to demonstrate your qualification
Specific health and safety permits might be required, especially if operating a studio
Obtaining a freelance business license is a great way to boost your credibility and steer clear of legal repercussions. It lays the groundwork for a successful and fulfilling freelance career.
However, taking the time to do adequate research is key to understanding the requirements of your specific situation.
If you’re still having trouble navigating the complexities of freelance work, working with a trusted professional can put your mind at ease. Remote’s Freelancer Hub makes it easier to run your freelance business.
To learn more about how Remote can help your freelance career, book a demo or sign up today.
Sign up with Remote Freelancer Hub and manage your clients, organize contracts, invoices and get paid — all in one place.
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