1. You should pay him the amount specified in your written contract. That amount depends on what you can negotiate (probably more than you want to pay him but less than he wants you to pay him).

2. You should pay a lawyer to write a collaboration agreement for you (preferably a lawyer with experience in game contracts).


http://www.sloperama.com/advice/article58.htm
http://underdevelopmentlaw.com/collaboration-agreements-and-online-development-teams/
http://www.obscure.co.uk/directory/directory-legal/

Of course, talking to a lawyer is your best movechere. Like it or not, as soon as you start paying other people and receiving money for your work, you've created a business, and doing business without a lawyer is risky..

For this game, it sounds like you want to hire them for a specific, and relatively small amount of work. For that reason, your probably want to get a "Work for Hire" agreement. That's a simple agreement that says what they are making for you, how much you are paying them, and also (this is important) assigns all rights to what they've created over to you. I.e. you pay them a flat fee, and they give you ownership of what they've created in exchange for that fee.
If you are the generous type, you can specify they get a bonus if for some reason your game does immensely well. (eg give them a $50,000 bonus if the game has over $1M in post-android's cut income, etc).. I'd avoid giving them a percentage-- that's generally used when there is a lot more collaboration than seems to be the case here. It's also a potential for large headaches if the game gets big as you both argue over things like net revenue, marketing expenses, etc.

If/when you do set up a company/LLC, your business relationship with them depends on your actual relationship with them. It sounds like you're the instigator and 'brains', and you just want some art. That sounds like a "contractor" relationship. If you make someone 'part of the company', then you have gone into full fledged business with that person. At the risk of a non-PC analogy-- A contractor relationship is like normal dating. You can break up at any time without any real issues. If you're in business with someone, it's like getting married-- you are legally bound to this other person, so you want to make sure it's someone you want to be legally bound to.

As far as what to offer, take a look at what contract artists on the market are getting. Better yet, write a fairly detailed description of what you need, and then have them give you a quote.

Brian Schmidt
Brian Schmidt Studios

One small followon. Assuming you're operating out of the US, if you pay a contractor more than $600 in a calendar year, you are required by the IRS to provide that person with a "1099-MISC" at the end of the year. That form tells them how much you paid them during the year. You also then need to file a form with the IRS that says "I paid people and gave them 1099-MISC forms". So keep good records.
Great fun...huh?

Make sure you check your contract with your current employer. Many employee agreements contain clauses that limit outside activities that compete with the employer's business or that require IP assignment to inventions created outside of work that are in the same line of business. This often comes up for developers working at big publishers. Moonlighting is often tacitly condoned or ignored, but there is always a chance your employer is not that enlightened. Good luck!

Make sure you check your contract with your current employer. Many employee agreements contain clauses that limit outside activities that compete with the employer's business or that require IP assignment to inventions created outside of work that are in the same line of business. This often comes up for developers working at big publishers. Moonlighting is often tacitly condoned or ignored, but there is always a chance your employer is not that enlightened. Good luck!

Very good point. Somehow I missed that in the original post.