Contracts are a must in any business relationship, but they’re particularly important for independent contractors to provide legal protection, establish roles and responsibilities, and outline services to be performed.
The content of your contract should provide as much protection as possible, while also clearly establishing expectations of both parties. The exact language and sections included in your contract may vary depending on your industry, client type, and location. While your contract may contain much more information, here are seven general sections that should be included in any contract between an independent contractor and client.
One important, but easy to overlook section of your contract is defining your role as a consultant or contractor. This is important both for you, if you ever have to prove your work status for tax or financial purposes, and for your client, as protection against employee misclassification.
Remember, a contractor-client relationship is a business relationship, not an employer-employee relationship. This part of your contract may say something like: “[Your Name] is an independent contractor and is not an employee of [Name of Client].” You may also want to specify that you have the sole discretion of how, when, and where you fulfill the terms of your agreement, and that you are responsible for providing the tools needed to perform the work.
Next, it’s important to include the specifics of the work you are going to do. This will help to make sure you and your client are on the same page in terms of the scope of the project.
Discuss any and all tasks and deliverables that the client expects to be completed, and define a process for addressing scope creep. Having a backup plan in place will help ensure that changes are approved quickly so you can get the project back on track in the case of setbacks.
When discussing your bill rate and terms for a project, know what you want ahead of time, what you plan on asking for, and what your absolute bottom line is. Price can sometimes be a point of contention in contract negotiation, but if you come prepared and confident, you can reach an agreement with your client.
In addition to payment, discuss how your client wants to be billed as well as net terms—the amount of time your client has to send payment after receiving an invoice.
When creating a contract, don’t assume that anything is understood—it’s best to get it in writing. If there are multiple departments or business units involved in a project, designate a point of contact and discuss how much time this person will have for reviews and approvals. Establish a process for communicating your progress that works best for you and your client. Some clients will require contractors to provide insurance coverage; if this is the case, it should be included in your contract.
Include the general length of your working relationship in your contract; if you don’t know exactly when you will complete your project, you can list an approximate timeline. Outline concrete deadlines for project deliverables and discuss exactly what the client expects you to deliver at those points.
In addition, discuss what constitutes a successful deliverable or milestone. Setting actionable metrics will help you make progress towards your goals, and your client will know exactly what they can expect to receive at each step in the process.
Termination conditions outline the rights of both parties to cancel a contract. This is an important section to include in the event of a worse case scenario. Reasons to end a contract may include a breach of contract or nonpayment.
Non-compete clauses are designed to prevent employees from taking knowledge or insider information from a company to a competitor. As an independent contractor, non-competes are rarely a good thing to agree to because the very nature of your work involves moving from client to client—some of which are bound to be competitors.
If a client wants to include a non-compete clause, explain that this would prohibit you from remaining in business once the contract ends. If they insist, try and find a middle ground by including non-disclosure terms or a confidentiality clause.
The contract process is a great opportunity to establish a positive working relationship with your client. By aligning expectations, you can meet your client’s needs and have a clear idea of what they expect of you. Once you’re both on the same page, you can move forward with confidence.
Consultants who run their business through MBO Partners receive help with reviewing contracts for potential issues. Don’t hesitate to reach out if you have questions about creating a contract for your next project.
As a 1099 you are responsible for paying quarterly taxes and a self employment tax. You can reduce the hassle and risk using these steps.
MBO Partners rounds up news of note pertaining to independent contractors from around the web. This is the September 1, 2015 edition.