Use Written Service Contracts for Your Clients

Independent contractors can avoid trouble by putting client agreements in writing.

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When you agree to perform services for a client, you are entering into a legal contract -- you promise to do the work, and the client promises to pay you for it. Many independent contractors rely on handshake agreements with their clients. But if something goes awry with the deal, you may have trouble enforcing the agreement. To protect yourself, get the agreement in writing.

Why You Need a Written Service Agreement

If a client refuses to pay, insists that you agreed to perform more or different work, says that you agreed to charge less than your usual rate, or otherwise won't live up to his or her end of the bargain, you're in a bind. You could try to convince a court that your version of the contract is correct but, without a written contract, it will be your word against the client's, and there's no telling whom a judge or jury will believe.

Fortunately, there's an easy way to avoid these problems: Always get your agreements in writing. Using written contracts will help you prevent misunderstandings, clearly define the expectations you and the client have about the job, and prove your case in court, should it come to that.

What's more, a written client agreement can help you establish that you are an independent contractor, not the client's employee -- which will be very useful if the IRS or another government agency questions your status.

What to Include in the Service Contract

A written client agreement should cover at least these topics:

  • the services you will perform
  • how much you will be paid
  • how and when you will be paid (for example, whether you will receive a set fee or an hourly rate; whether you will be paid up front, at completion, or in installments; whether the client will have to pay a fee for late payments; and so on)
  • who will be responsible for paying expenses (most ICs pay their own)
  • who will provide materials, equipment, and office space (again, most ICs provide their own, but there are exceptions)
  • how long the agreement will last
  • the circumstances under which you or the client have the right to terminate the agreement, and
  • information relating to your independent contractor status -- that is, that you are an independent contractor, that you have all of the necessary permits and licenses to do the work, that you will pay your own state and federal taxes, and that you have your own liability insurance.

There are also a few standard legal provisions you should include, such as a statement that you and the client are not partners in business and that you and the client have no outside agreements about the deal except what's been included in the contract.

Next Step

To get language for all of these provisions (and many more) get Consultant and Independent Contractor Agreements and Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants, both written by Stephen Fishman and published by Nolo.

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