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For Independent Contractors: Protect Yourself

After years spent working as an employee, you may have decided to venture out on your own. In this new capacity, you're likely operating as an independent contractor for several firms. This setup generally provides more flexibility than you had before, but also requires a higher degree of legal protection for your work.

Case in point: When you agree to perform services for a client, you are entering into a legal contract. It does not matter if the deal is sealed with just a handshake (although, as you will see, this is strongly discouraged). In effect, you are obligated to do the work and the client is obligated to pay you for it.

Unfortunately, things may not go as planned. Suppose that the client refuses to pay you or argues that you are not living up to your end of the bargain. The client could have a legitimate gripe or could be distorting the facts. In either event, you face an uphill battle. Essentially, you will have to convince a court that you are in the right and your client is in the wrong.

However, there is a relatively easy way to sidestep potential problems: Put the contract in writing. By using a written agreement, you can head off serious disagreements, define expectations for both sides and clarify the terms of the deal. And, should the case ever come to court—after all, even written contracts are subject to dispute—you will have the proof in hand needed to support your position.

As an added bonus, a written contract can help establish that you are, in fact, an independent contractor rather than an employee. This can protect you from a challenge by the IRS that you are trying to evade payroll taxes.

What should be included in a written contract for the benefit of an independent contractor? Although the terms will vary according to your situation, a basic written contract should, at the very least, cover the following items:

*A detailed description of the services that will be performed;

*The amount that will be paid for the services (or the formula to be used);

*The length of time the services will be provided;

*The manner of payment (e.g., time and place for payment, installments or a lump sum, etc.);

*Any penalties assessed for late payment;

*Responsibility for paying expenses (usually, this falls to the independent contractor); and

*Rights of termination.

Note that the agreement should also reflect information concerning your independent contractor status and refer to any permits and/or licenses required to do the work as well as insurance provisions.

Finally, make sure that standard legal provisions are included, such as a statement that there are no independent agreements about the terms of the contract. Have your attorney double-check the fine print.

 

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