Navigating contracts for contract employees or freelancers can be a daunting task. Unlike traditional employees, hiring contract employees doesn’t always follow the same recruitment or HR pipeline process. Their employment contracts require different information, have different terms, and will bring different expectations from both parties. Whether you’re new to working with contract employees or a seasoned professional, understanding how to effectively navigate your agreement or contract is essential for protecting your interests as a company.
What Are Contract Workers or Freelancers?
Contract workers or freelancers (used interchangeably in this post) are workers that you hire to tackle a specific project. They aren’t typical employees in that they don’t receive benefits and they oversee their own taxes. Furthermore, they’re usually hired for a set time—not indefinitely, like a typical employee. More and more companies are utilizing contract workers as the workforce continues to desire more flexibility and freedom in their scheduling.
Why Have a Contract?
In our modern workforce, many “handshake deals” are made between a contractor and company. However, it’s essential that you create official agreements that are written and signed. You should always, always document agreements in writing to avoid the misunderstandings and disputes that often arrive with verbal agreements.
A contract is a legally binding agreement between two or more parties that outlines the conditions of a business relationship. Furthermore, your contract can serve as a place where you go to answer questions about problems that arise. Contracts should include a wide range of topics like the scope of work, deadlines, payment terms, confidentiality notices, or termination clauses. Your contract keeps you and the contract employee safe.
Do: Understand the Various Types of Contracts
There are numerous types of contracts that you could create with a contract employee:
- Fixed-price contracts: Both parties agree to a specific project for a set fee.
- Hourly contracts: Both parties agree that the company will be billed based on the number of hours worked.
- Retainer contracts: Both parties agree that the company will pay a regular fee to secure a contract worker’s services over a period of time.
- Project-based contracts: Both parties outline specific deliverables, and payment is made upon completion of those deliverables.
Clearly defining the scope of work should make up the bulk of your contract so that both you and the contract employee know what’s expected and when.
Don’t: Ignore Renewal and Extension Clauses
It’s important as a business to be fully aware of renewal or extension clauses within your contract. These can affect the contract employee’s ability to move onto other opportunities and can make it much harder for you to end a partnership that isn’t working out. When and how a contract employee’s agreement should be renewed, extended, or canceled must be laid out in crystal clear terms. Similarly, your contract should include the conditions under which either party can terminate the contract, along with the notice period required. This is particularly important if the working relationship does not meet expectations.
Do: Negotiate Terms
If a contract employee produces their own contract, don’t be afraid to ask for things that don’t align with your needs to be removed, or to add clauses that will help your company stay protected. You shouldn’t feel pressured as a business to simply sign the dotted line on whatever contract a contract employee insists they need. Consult a professional lawyer to make sure you fully understand the legal implications of a contract, specifically an attorney that specializes in contract law or freelance work. They can provide useful insights and help you understand your rights and obligations. If there are any terms or clauses that are unclear, don’t hesitate to ask for clarification. It’s better to address any potential uncertainties now than to face significant issues later. And better yet, use your own contract created by your company attorney.
Don’t: Overlook Confidentiality
Incorporating a confidentiality clause that protects sensitive business information is an absolute must for any business looking to work with a contract employee. Protecting proprietary information is crucial for any company, and a confidentiality agreement can prevent contractors from sharing sensitive data with competitors or unauthorized parties. Depending on your industry, you may have a higher or lower level of confidentiality that’s necessary for your products or services. But no matter how confidential you tend to be, contract employees can represent a huge security gap if not managed properly.
Do: Include Payment Terms
Your contract is the place to specify how much the contractor will be paid, the payment structure, and the timing of payments. Clear payment terms help ensure timely compensation and set expectations regarding billing cycles. There should never be a question from a contractor as to when they’re getting paid, and there should never be a question from a company as to how much they owe. All of that should be clearly laid out in the contract. Include details on invoicing procedures and any conditions for payment, such as project completions. You should also detail how a contract employee will be paid—direct deposit? Paper check? In installments? Again, the clearer the better. Don’t assume anything.
Don’t: Overlook Local and Federal Laws
It’s essential not to ignore relevant labor laws and regulations when drafting contracts. Again, this is where professional legal help likely becomes necessary. The last thing you want to do is to fail to comply with local, state, or federal laws. Failing to adhere to these regulations can result in massive legal challenges and penalties, turning into a drain on your time and resources. It’s crucial to stay informed about laws affecting contract workers if you plan on working with freelancers going forward.
Are you wondering whether the contract employee laws and regulations will change with the incoming presidential administration? Let us help you! Join our employment experts who will discuss how the incoming U.S. Secretary of Labor will change and shape the HR industry. Be there on January 13 at 11:30am EST!
Claire Swinarski is a Contributing Editor at Hr Daily Advisor.
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