[Intro Music] This is Office Talk with Annette Stepanian.
When you first start your business, one of the first things you need to invest in from a legal perspective are a solid set of contracts. But then the question becomes, what contracts do I need for my business? I’m going to answer that question for you and introduce you to the four contracts that I recommend that you have when you’re running a business.
The first contract is a client service agreement. This governs the relationship between you and your client for the sale of your services. So let’s say you’re a service provider. Maybe you’re an event planner, a photographer, a graphic designer, a coach, whatever lovely thing that it is that you do, it’s important to have a contract in place when a client comes to you and wants to hire you.
One of the reasons why it’s so important to have a service agreement in place is because it clarifies the party’s expectations. When you’re working with a potential client, oftentimes, you’re going back and forth, and you’re talking about your services, and what they can expect from you and what the client’s needs are. And in that process, a lot of conversations are happening. And there’s a potential that things might get confused or misunderstood. You also have to recognize that your clients have likely never worked with someone like you before. Let’s say you’re an event planner, chances are your client has never planned an event before and doesn’t even know what to expect from an event planner. They don’t even really understand what their role in the process is. So having a contract helps clarify that so that there’s hopefully no confusion moving forward.
Next, a solid client service agreement keeps a record of your rights and obligations and it covers your booty. You might be entering into a contract where it’s going to take you a few months to perform the work. So you’re setting out these agreements, far in advance of when the work is actually going to be delivered. So having a written document that you can refer to in the event that there’s some sort of confusion, or maybe just plain old memory loss is super helpful. I don’t know about you, but sometimes I don’t even remember what I ate for lunch yesterday, let alone with what I may or may not have agreed to when I entered into a contract with somebody. And so having that contract that I could turn to saves me so much confusion and misunderstanding and potential conflict.
Next, it may support your case in court. Although there are certain circumstances where oral contracts can be upheld, in my experience, when you’re standing in front of a judge, they really want to see a written agreement. So if you should ever find yourself in that situation where you’re standing in front of a judge, you are going to want to have a written document that you can present to that judge evidencing the agreement between you and the other party.
And finally, it communicates that you’re a professional. I don’t know about you. But when I work with somebody who presents me with a solid contract, I can’t help but think this person’s really got it together. It makes me feel safe and protected. And like I’m dealing with a true professional, like she’s really thought through about how she’sgoing to handle things if certain situations come up.
Now, the second contract that I think you need to have is an independent contractor agreement. This governs the relationship between you and an independent contractor you hire to assist with your business.
Now, let’s first talk about what really is an independent contractor? I know the term can get a little confusing. But essentially, these are people who are non employees. So they are not considered by the law to be your employee. In contrast, they are in an independent trade, business or profession in which they are offering their services to the general public. What does that mean? Basically, these are people that you hire, or you contract out with to provide you certain services. But these people are really in the business of providing their services to a number of different clients.
So an example, let’s say you have some graphic design work that needs to get done. And you don’t really have anybody in house who can do it. So you contract out that work to a graphic designer. That graphic designer, we’ll call her Sally, she runs her own business, her own graphic design business where she offers her services to a number of different clients. She’s the one who decides how she’s going to do the work when she’s going to do the work. She provides her own tool. She has her own version of Photoshop and Illustrator on her computer. She’s really in the business of providing graphic design services to a number of different clients. And she really has a stake in whether or not her business succeeds. Now someone like that is probably going to be an independent contractor.
Now the test of whether somebody is an independent contractor is going to vary from agency to agency. So the IRS might have a different standard that they look at, versus maybe a state taxing agency. It really boils down to a multi-factor test. And there is no one factor that’s more important than the other and there’s no magic formula which factors you need to have. But a general way to think about it is, does this person exercise a great degree of control and how they do their work?
In going back to our graphic designer example with Sally, if Sally decides when, where, how she’s going to do the work if she has her own tools, if she pays for her own expenses, if she has her own business, it’s more likely that if you’ve classified Sally as an independent contractor, then that classification is going to be correct.
Now, you might be thinking, why is correct classification so important? If you’re not very familiar with independent contractors and employees, one of the reasons that small business owners love to have independent contractors is that it ends up costing them a lot less both in terms of time and money. Because when you have an employee, you as an employer have certain obligations that you need to fulfill, including withholding payroll taxes, you might maybe provide certain benefits, it can become a bit of a hassle for especially small business owners. So the inclination for most people is we want to classify them as an independent contractor.
Now, you want to be careful about how you classify a worker. And we talked all about this in Episode Number 20, when I interviewed my good friend, who’s a partner at a labor and employment law firm in Los Angeles. So you’ll want to take a listen to episode number 20, where we talk about the different factors that you need to be considering when you’re ready to hire somebody. And why the whole independent contractor versus employee classification is so important. But suffice it to say that if you improperly classify somebody as an independent contractor, meaning that they should have been properly classified as an employee, you might be liable for penalties, back taxes and other fees. That is a real pain in the butt. So that is why correct classification is so important.
So why do you need an independent contractor agreement? It’s important because not only does it set the parameters of your working relationship, as with any other contract. But having an independent contractor agreement in place with someone that you’ve hired, who is properly classified as an independent contractor is one of the things a government authority might look at to determine if your classification of that worker was done properly. It’s not the only thing that they look at, but it is one of the factors. And I have to note, just because you have a written agreement in place, saying that you guys are entering into independent contractor agreement doesn’t automatically make them an independent contractor. But it does help.
So you might be thinking, well, if I’m hiring somebody to do work for me, shouldn’t that person have a contract for me to sign? And you’re right. YYes, in theory, they should have a contract like a client service agreement to give you so that you could sign. However, in my experience, oftentimes, people don’t have a contract to offer you. So I don’t want you to be put in a situation like this. So what I recommend is having an independent contractor agreement in your back pocket, should you ever find yourself in a situation where you want to work with somebody, and they don’t have a contract. This way, you can pull out your independent contractor agreement, you can fill it out and get to work.
Also, it let’s say they do have a contract to offer you. Sometimes they’re very bare boned. So if you have a solid independent contractor agreement that you could refer to, it’s really nice to cross reference it and make sure that the contract that they have offered, you isn’t missing some key terms that can help establish that independent contractor relationship.
At this point, you might be thinking, cool, I have some of these contracts, or maybe you have none of these contracts. I do offer these contracts over on my website. And so what I’ve done for the first time ever is I’ve taken these four contracts that I think are truly essential for building a solid business and I’ve bundled them together at a discounted price. And it’s called the Quick Start bundle. You can find those over at annettestepanian.com/quick, what you get with each contract template that you purchase for me is a guide that explains each term of that contract in plain English, and has instructions on how you can customize it for your business. You also get a copy of the contract both in word and PDF format. But also you get some extra resources. IIncluding a contract review checklist so you can make sure that you’ve dotted all your I’s and cross all your T’s before you sign or send off a contract. As well as some extra video training, including how to amend a contract after it’s been signed. As well as how to draft a contract when you provide multiple services.
And the cool thing is you get lifetime access to the contracts and the resources which means that if I make any changes or updates in the future, you’ll get those as well. Check it out over at annettestepanian.com/quick or you can find the show notes over at annettestepanian.com/podcast/26.
So with that said, I hope you have a fantastic day my friend and I can’t wait to talk to you later.