What Are Independent Agreements For Contractors?

Small Business Tips
Jan 13, 2023

In a perfect world, contractors only need a handshake and smile to do business with their clients. But we don’t live in a perfect world. Things go wrong, and you could find yourself in trouble if it does.

This is where independent agreements come in. These important documents help contractors manage projects by protecting you, your work, and your livelihood. Let’s look at independent agreements, what they do, and how they can work for your small business.

What is an independent agreement?

An independent agreement is a contract between you and a client. Sometimes called a “contract for services”, these agreements define your role as a contractor. An independent agreement covers expectations for your work, how much you’ll be paid, and other obligations that you and the client have to each other.

Why are independent agreements important?

Well-written contracts serve an important purpose: to help you avoid lawsuits. This is how they help you do this:

They put everyone on the same page. Contracts help set expectations around a project or working relationship. They detail the work you will deliver, as agreed upon by you and the client. Rather than sifting through dozens of emails, texts, or pages of notes, everything is in one place—your independent agreement.
They make your working relationship clear. Contracts help iron out the details of a project or work. It creates a legal road map for how things will unfold, such as when work must be delivered and when the client needs to pay you.
They give you certainty. Contracts make the work you need to do clear. This can help you avoid ‘scope creep’—when the client asks you to do additional work without paying more. Contracts can also set guidelines for handling unexpected situations, like delays caused by events beyond your control.
They can help clear up confusion. Contracts (if they’re well-written) list essential details about the project or work you’re providing to the client. It should make plain details like the project’s scope, timeline, deliverables, who owns intellectual property, and payment.
They show your professionalism. Contracts show clients that you take your work seriously. You’re organised, know what’s expected of you, and expect the same high standards from your clients.

Business insurance and independent agreements

Business insurance is essential for many contractors. It helps protect your small business against common claims and lawsuits that could be brought by an unhappy client. You might consider policies such as:

Professional Indemnity — This policy is designed to respond to claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice.
Public Liability — Covers you if a third-party claims that your negligent business activities caused them injury or property damage or personal injury (not covered by the ACC).
Business Insurance — An insurance package designed to cover your business contents, stock, tools and commercial premises. It can also cover loss of revenue due to business interruption in specified circumstances.
Cyber Liability — Covers you for losses from claims arising from data breaches, business interruption and remediation costs following an actual or threatened data breach.

Liability insurance requirements are often written into independent agreements. Typically, the client may mandate that you have a minimum level of coverage to work with them. This is to ensure that if something goes wrong, you will be able to pay to fix the issue. It also helps keep the client’s insurance premiums low, as they may prefer to make a claim through your policy rather than their own.

Using independent agreements in your business

Having clients sign an independent agreement might seem like a hassle. But not using them could cause bigger headaches. If you keep the process simple, the contract process can be relatively quick and painless.

Here’s a process for how to use independent agreements in your business:

Get a contract template – A solicitor can help you write a template that meets the needs of your small business. Pulling one off the internet may not comply with New Zealand law and may violate someone’s copyright.
Have a discovery call with the potential client – Discuss their project and the work to be done.
Follow up by email – Send a written proposal that details your understanding of what was discussed and the services you can provide.
Hammer out the details – Discuss changes to your proposal.
Send the contract – Once everyone is happy, email back the amended proposal and contract.
Get client sign-off – Ask the client to accept the contract by signing in person or electronically or by replying by email.

That’s it! An independent agreement can help your business run more smoothly, clearing up confusion and setting expectations early. As a contractor, you can also protect yourself and your business just by asking clients to sign on the dotted line.

Looking for more ways to protect your business? Consider buying small business insurance with BizCover. In just a few minutes, you can compare policies and get instant cover. Compare quotes for business insurance and save today!

This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.