Being an independent contractor can feel lonely at times. It’s just the nature of the business: You’re relying on yourself, and it can often feel overwhelming. That’s especially true when you’re faced with independent contractor agreements filled with legalese that’s hard to understand.
Lucky for you, we talked to an business attorney on independent contractor agreements: what to look for, tips and tricks for making yours workable, and things to avoid.
Megan Porth is a business and contracts attorney in Arizona, and spends most of her days going through contracts. (To watch our full webinar with Megan, you can jump over here). She’s a wizard when it comes to independent contractor agreements and gave us plenty of helpful tips.
The “Services and Compensation” section is critical
“The Services and Compensation” section is actually the most important part of the contract,” Megan said. “Really this is where we get down to the nitty-gritty.”
Items covered in this section include the number of hours the independent contractor plans on working, the amount of money they’re paid for their service or product, the specific hours they plan on working per day or per week, etc.
A helpful tip from Megan is to cap your hours if you’re an independent contractor. This is to “reign in” clients who might take advantage of your time.
“When I offer services, I will say things along the lines of, ‘It will cost you this much money for the project, not to exceed three hours of legal services,’” Megan said. “If we do exceed three hours, you’ll be charged $100 per hour.”
It’s all about managing a client’s expectations in this section, and that can be crucial for the future of the relationship.
Under-promise and over-deliver
Be realistic – and maybe even a little conservative – about how long it will take you to complete a project. If you’re an independent contractor, don’t agree to a tough deadline you’ll struggle to meet. That way, you can arrange your projects and schedule to complete work early.
This is a great example of what Megan said you should always do in an independent contractor agreement: “We want to make sure things are specific when it benefits us and vague when it doesn’t,” she said.
Registering as an LLC can be helpful
Even with an independent contractor agreement in place, things can go wrong. That’s why it’s helpful to be registered as an LLC, which can limit your liability in those cases.
Megan likens it to treating your business as another person (like your grandma, actually, as she writes about here).
“The reason we form entities to begin with is we’re creating a buffer or shield,” she said.
Pay attention to details about payment
As an independent contractor, you rely on your clients to pay correctly and on time. So make sure all those specifics are laid out in your contract! How much are you being compensated? What kind of payment schedule are you on? What happens if the client is late on paying you? These are all questions that should be answered in any independent contractor agreement.
Also take a look at details on expense reimbursement. Whether or not expenses need to be pre-approved, whether you’ll get a credit card to use and whether you need to send an invoice are all questions an independent contractor agreement needs to answer.
Nail down specifics on termination ability
Things can get sticky when a party is legally stuck in a contract they don’t want to be in. So it’s important to review specifics on how you’re able to terminate an agreement, if needed. Does the contract auto-renew? Is there a 60-day notice requirement? And does that requirement extend to just the client, or are you – the independent contractor – able to cancel with that notice too?
Reciprocity is your friend
An independent contractor agreement should be fair, above all else. Sometimes that means asking for the same protections that a company or client is affording themselves – like termination ability.
“A lot of the times, if you’re presented an independent contractor agreement, they’ll afford themselves termination privileges but won’t give them to you,” Megan said. “That’s one thing I always demand – that you get the same termination ability as the other party.”
Reciprocity should extend to things like confidentiality as well.
Don’t let your contract make guarantees you can’t keep
Back to the “under-promise/over-deliver” philosophy. It’s important that your independent contractor agreement doesn’t make any guarantee that you can’t keep. For example, if you’re helping a client with sales and marketing, a piece of the contract should explain that you’re not guaranteeing more sales.
Megan herself deals with this as an attorney: “I have to put in there, ‘in these situations, it is not possible for me to guarantee an outcome,’” she said.
Non-compete clauses are often inappropriate for an independent contractor
If you’re an independent contractor, Megan says, strike the non-compete clause. That kind of inclusion is often (and should be) reserved for employees – not independent contractors. You’re already agreeing to non-disclosure and confidentiality, after all.
It’s important to note, however, that courts will often uphold a non-solicitation clause. This means you’re not able to solicit employees or clients to leave the company to come work with you.
In case of dispute, push for a 10-day good-faith negotiation
No matter what, there’s always possibility for dispute with independent contractor agreements. So when or if this happens, Megan said it’s crucial you ask for a 10-day good-faith negotiation before anything escalates. Arbitration or mediation can preface trial, and these are all options in case of dispute. But a 10-day good-faith negotiation is how that process should always start.
And if it does go to trial? Never, ever waive your right to a jury trial. Juries, Megan said, can often be more sympathetic to an independent contractor rather than a larger company.