Minimise risk when entering a new contract

As an independent contractor your obligations and entitlements differ from those of a typical employee. Ultimately, you’re responsible for running your own business.

In the eyes of the Australian Government, “when you agree to do a job for another person or business in exchange for money or some other benefit, you are probably entering into a commercial contract. If so, this contract is legally enforceable regardless of whether it was a ‘handshake deal’ or a written agreement.”

To minimise any risk to your business, Ayers Group advise negotiating rates and working conditions prior to starting a new contract – no matter its length. The risk of not having a written contract may include:

  • Misunderstanding of expectations
  • Dispute in pay terms
  • A negative business relationship
  • Legal vulnerability for your business

The next time you enter into a contract, feel confident you have everything in hand before signing on the dotted line.

What to include in a contract?

When drawing up, or agreeing to a contract be sure that the following is included as a minimum:

  1. Details of all parties involved
  2. Description of services required
  3. Payment details
  4. A confidential information disclosure
  5. Indemnity
  6. Exclusivity agreement
  7. Procedure for settling disputes
  8. Contract termination

Establish your status: Contractor vs Employee

As a contractor you have more freedom by law in the way you choose to work. It is vital your employer refrains from enforcing too many restrictions on your contract (i.e forcing you to work onsite or limiting your working style). Too many terms may mean you are classified as an employee. Knowing your status is important for tax, superannuation and insurance purposes and helps to avoid working under an illegal ‘sham’ contract.

Set expectations

Before you commit to a job it’s important to set realistic expectations of the task at hand. Your contract should outline the goods/services to be provided, any quality and quantity specifications, timeframes and deadlines. This helps to preserve the business relationship and ensures the job is completed to the desired standard.

Negotiate pay

Talk of money has the tendency to make people feel uneasy, however as a contractor it’s essential to negotiate rates of pay. Your contract should set out whether payment will be by fixed fee or hourly/daily rate and this should be measurable against your experience and skill set. While payment schedules may vary, it may be sensible to organise key benchmarks in the project to be paid, this will help you ensure you are not being underpaid for your time.

Settle disputes

As most contractors are aware business dealings do not always run smoothly. Therefore, it is good practice for your contract to include how you plan to settle disputes if they should arise.

The consequence of not settling a dispute yourselves is to take legal action. This is often a lengthy process with large cost implications. For this reason, you may choose to take the following steps before the need for legal proceedings arises:

Step 1: Present a formal written notice
Step 2: Hold a discussion with the other party following the written notice
Step 3: Refer the dispute to a third party

Get it in writing

It may seem obvious but a written contract provides clarity and helps to minimise business risk for both parties. Verbal contracts can be risky as they lead to uncertainty over rights and obligations, so it’s always best to get your contract in writing. However, if a written contract isn’t possible, make sure you have some documentation that will help you identify what has been agreed: emails, quotes, specifications or even notes about your discussions.

It is natural that the business agreement will evolve over the course of the contract, which is why it’s important to manage the working agreement. Once signed, reevaluate the terms to ensure you are both happy with your working relationship.