Many businesses outsource tasks to independent contractors to obtain expert assistance or have someone come on board to complete specific tasks for a big project. Independent contractors are usually engaged through an independent contractor’s agreement. Occasionally, some contractors may have their own services agreement to provide to a business. This article explores the key terms that you should include in your contractual arrangement.
Difference Between a Independent Contractor’s Agreement and a Services Agreement
An independent contractor’s agreement and a services agreement commonly refer to the same arrangement. However, there is one main difference. Depending on your position in the arrangement, one agreement will be more advantageous than the other.
An independent contractor’s agreement is usually more beneficial for the party receiving the services.
A services agreement is usually more beneficial for the party providing the services.
The agreement your business uses for your arrangement will ultimately depend on the industry and the type of services the contractor provides. There are particular terms that should form part of your contractual arrangement.
1. The Services Offered
An independent contractor’s agreement should provide specific details of the services or project which you are engaging the contractor to perform.
The agreement should set out the:
- timeframe or key milestones of the project;
- hours of work;
- deliverables of the project; and
- way the business will pay the contractor for their services.
If a contractor is being engaged in a one-off arrangement, the requirements of the arrangement should be set out alongside any deliverables. For example, workshop dates and the number of hours the contractor needs to be in attendance. The description of the actual services should be as specific as possible. This will prevent any ambiguity as to what the business is actually purchasing.
However, sometimes the services do not have specific deliverables. In this case, it may be beneficial to draft the details of the services as a limited range of tasks. These tasks will be only those that the contractor has the expertise, skills and ability to provide.
It is also important to set out the payment that the business will provide to the contractor for the services. Specify whether the business will provide the payment on an ongoing basis or in a lump sum. The business should ensure the payment method is specified after the business receives an invoice for work done. It should not be paid without a commercial request for payment.
2. The Period of the Arrangement
The term of the arrangement should be specified in the agreement.
For project-specific arrangements, the start and end dates should be included.
There are also situations where a contractor may be engaged for an ongoing period. In this situation, it is important to include a detailed termination clause. This will specify when the ongoing arrangement should come to an end. Businesses wishing to engage contractors for ongoing purposes should also be aware of the difference between a contractor and an employee. Businesses must ensure that they do not inadvertently engage a contractor on a “sham contractor” basis.
There are also arrangements for contractors to provide services on an ‘as needed basis’, known as service orders. For example, you may require an IT specialist to periodically update internal software systems. Another example is if you are running a magazine or online blog and only need writers to provide content on request.
The independent contractor’s agreement should set out how the contractor can accept a request for work. It should also specify whether there is any flexibility in the provision of work.
3. The Contractor’s Obligations
The independent contractor’s agreement should set out the contractor’s obligations, which will depend on the type of services that are being provided and the industry. Some possible obligations may include:
- the requirement for specific licences or qualifications;
- the need to provide equipment in order to perform tasks;
- an obligation to correctly remunerate itself from the service fee paid by the business (including paying wages and superannuation);
- an obligation to comply with any applicable laws specific to the services being provided;
- access requirements (for example, for workshops or training services); or
- details setting out whether the contractor may subcontract or use third parties in providing the services.
4. Confidentiality and Intellectual Property (IP)
Confidentiality clauses are important in a contractor arrangement. These help ensure that your business protects its confidential information and that the contractor does not disclose confidential information.
The independent contractor’s agreement will need to address what happens to IP used or created by the contractor. For example, if your business engages a contractor to write an article, the contract should address whether they will transfer their rights in the IP to the business. Alternatively, the business may only use it on the basis of a licence.
If you are a business engaging a contractor, the independent contractor’s agreement should ensure that the contractor will take entrepreneurial risk and responsibility for the services that they provide. Also, it should specify their obligation to take out insurance in the event that the services are not fit for purpose or if the contractor (or any of its employees) are injured.
If required, a business may also wish to obtain protection from any consequential losses. These may flow on from the services provided to the business. Accordingly, there should be specific clauses stating that the contractor will take liability. The agreement should also require the contractor to indemnify the business from any claim or liability for their services.
Some contractor arrangements allow a business to obtain a contract from a third party and engage the contractor to provide the services. The head contract refers to the agreement between the business and the third party. As the contractor is going to provide the services, it is often important to include appropriate clauses in the independent contractor’s agreement to the effect that the contractor will need to fulfill the obligations contained within the head contract. This will help ensure that the business is not in breach of the head contract that they signed into.
In addition to the business being responsible under the head contract to the third party head contractor, businesses need to ensure that, by complying with the head contract, they are not unwittingly breaching obligations to their independent contractors. The business should take caution when establishing ‘supply chain’ and ‘back to back’ agreements. The risk and liability should be attributed appropriately to the head contractor, the business and the business’ independent contractors.
As contractor arrangements differ, the independent contractor’s agreement should reflect the specific arrangement. Often, the interests of each party may differ. Understanding the commercial realities for both parties is important when drafting the agreement. If both parties have a good understanding, the independent contractor’s agreement will be an effective document.
If you have any questions about your independent contractor’s agreement, or would like to ensure you have all the key clauses in place, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.