Why You Need an Independent Contractor Agreement When Starting a Service-Based Business

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When starting a business, you can create it as a goods or service-based business. Starting a service-based business has certain challenges and requirements that you must and some requirements that you should meet to be safe.

As a service-based business, you’re likely to work with people more than a goods-based business. You will most likely collaborate with others, deal with contractors, and more. Let’s take a closer look at what you might need to have in place when starting a service-based business.

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What is a Service-Based Business?

A service business is any business that provides services instead of goods and products. There are no limitations to the type of structure your service business can take. It can be a regular brick and mortar business, home-based business, or strictly a digital business. It can also be a combination of different business forms-a brick and mortar business with an online presence.

As long as the valuable asset that the business is providing is a certain type of service, it will be considered a service business.

All of these are examples of service businesses, but this is by no means an exclusive list: accounting, legal, event planning, virtual assistant, social media management, etc.

What Are Some Requirements that a Service-Based Business Must Meet?

A service-based business is still a business that sells something, in this case, a service. Therefore, you must treat it as a normal business.

Depending on where you live, there might be some permits that you’ll need to acquire before you can officially do business. Certain counties require a selling permit, some others will require an actual business permit.

An Independent Contractor Agreement is a must for every business -whether you’re the independent contractor or the business hiring one. Get an attorney-drafted Independent Contractor Agreement template from me.

There are also some other requirements that a service-based business might need to take care of before or at the start of the operation. Depending on what kind of service business you’re in, you might need to get general liability insurance and possibly even professional liability insurance.

These are some general requirements that your service business might or might not need. However, there are some requirements or necessities that all service-based businesses should consider. Due to the fact that a service-based business has interaction with customers often, there is a natural risk of liability. Therefore, service-based businesses need protection and contracts more than other types of businesses.

The reason for this is when you work closely with other people, independent contractors or vendors, then there is always a greater chance of miscommunication, of one party trying to get more than originally agreed to, or one party putting more burden on the other one.

This is why when you’re in a service-based business, having a contract that defines relationships, obligations and payments is one of the best things you can do for your business.

What is an Independent Contractor Agreement and Why Do You Need It?

An Independent Contractor Agreement is an agreement that lays down the specific obligations of each party involved in a particular transaction. Furthermore, the Independent Contractor Agreement will also specify information about rules, payment, the timeline for finishing up a certain project, how much, how and when the payment will be made, how can a contract be terminated, when can it terminated, what happens in case of a termination and much more.

A properly drafted Independent Contractor Agreement will make sure to address as many possible and potential scenarios as possible. When hiring an independent contractor to do something for you, or maybe you yourself are the independent contractor who gets hired by another person or business, there are many terms, obligations, and responsibilities that both parties need to discuss, understand and agree to avoid drama, a potential liability in the future.

What Should be Included in an Independent Contractor Agreement?

Let’s take a look at some of those essential clauses and sections that an Independent Contractor Agreement must include for a service-based business.

Parties Should Understand and Agree to What is Expected of Them

First and foremost, as mentioned above, an Independent Contractor Agreement will write down all the obligations of both parties in detail. The details are what’s important. The agreement shouldn’t cut corners and just quickly mention what needs to be done.

A far better option would be to actually list every single thing that a party must do. Moreover, it’s equally important, if not more so, to specify what parties will not do, meaning what obligations or tasks are not covered by the agreement and therefore, neither party must perform them.

Compensation and Fee-Related matters for Rendered Services

In a service-based business, the topic of money and compensation is perhaps more important than in any other business because people are actively involved and providing services. Therefore, the expectation of compensation is very strong and imminent. For this reason, your Independent Contractor Agreement must have clearly worded language about payments and fees.

This means that the contract must specify how much the contractor will receive for a specific project or for specific services rendered.

This means that the contract must specify how much the contractor will receive for a specific project or for specific services rendered. The Independent Contractor Agreement should specify whether the independent contractor is charging hourly, per project or a flat fee?

Aside from discussing how the fee will be charged, you need to address provisions such as when the payment will be made. Is it going to before services are rendered, or after, or maybe you have deposit due in the beginning, and the rest afterward?

No matter the terms and agreement the parties came to, it must be all in writing in your Independent Contractor Agreement. Having contracts, especially business contracts in writing is important as it avoids a lot of unnecessary back and forth between the parties.

Also, after you determine the amount that the independent contractor will be paid, you should come to an agreement in regard to the method of payment. Are you getting paid or paying someone via an online payment gateway such as PayPal or Stripe, or is it going to be direct deposit, or check, or maybe even cash (although not recommended)?

All of these seem like mundane details, but you must include them in the Independent Contractor Agreement.

Your Service-Based Business Must Have a Contract With a Termination Clause in it

A properly drafted contract, including an Independent Contractor Agreement, must consider such potential outcomes as the need to terminate the contract or services. When a termination clause is included in the contract, the process of terminating the relationship, the work, or the contract, is a lot simpler.

An Independent Contractor Agreement is a must for every business -whether you’re the independent contractor or the business hiring one. Get an attorney-drafted Independent Contractor Agreement template from me.

Termination can happen for many reasons, however, the end result is that the contract is no longer binding and the agreement is void. When you don’t address an important clause such as the termination clause, you’re leaving yourself open to a lot of headaches in the future.

Include a termination clause in your Independent Contractor Agreement going forward because that’s an essential clause to have in any business contract.

Delivery Timeline Clause

You’re probably wondering if there is anything else that an Independent Contract Agreement must contain in it for service-based businesses. The answer is yes There are at least two more very important sections that should never be forgotten.

In a service-based business when you’re working with people, there are always certain expectations that others will have of you and you should also have.

When you hire an independent contractor to complete a project or to take care of something, you can’t oversee the independent contractor the way you would an employee. You cannot dictate their working hours.

The one thing that you can control if you come to a prior understanding is the delivery timeline. In other words, when do you expect the work to be done and the product or service delivered by?

This is an important clause because without this an independent contractor or another business could theoretically stretch the performance timeline for as long as it suits them.

The vice versa is also true. If you’re the independent contractor getting hired, then you don’t want the hiring party to constantly badger you for delivering the project or service. It’s in both parties’ best interest to come to an agreement and put it in writing for the delivery timeline.

Intellectual Property Clause

When starting a service-based business, one of the most important assets you have is your intellectual property. Intellectual property refers to things in which you own copyright and trademark. Things that represent your business, that serve to identify your brand and more.

Every business contract should include an Intellectual Property Clause. This is especially the case for Independent Contractor Agreements. An independent contractor is a business owner in his or her own right. As such, both the hiring business or person and the independent contractor have intellectual property interests. Therefore, the Independent Contractor Agreement must include this clause in it to safeguard both sides’ interests.

Conclusion

A service-based business absolutely should consider having a professionally drafted Independent Contractor Agreement. This agreement serves to lay down all the terms and agreements that the hiring party and the independent contractor come to.

The Independent Contractor Agreement is a must-have agreement for service-based businesses and independent contractors who have their own businesses.

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