Contracts For Services: Everything You Need to Know
Contracts for services involve formal, legally binding agreements between a business and a self-employed person.3 min read
2. How to Write a Contract for Services
3. IR35 Tax Legislation in the UK
Contracts for services involve formal, legally binding agreements between a business and a self-employed person. They differ from a standard employment contract, which is known as a contract of service and is made between an employer and a person who becomes an employee of the business.
What Is a Contract for Services?
The main term to pay attention to is services. A self-employed person only provides a specified amount of work whereas an employee works indefinitely. You can produce a general contract for services that sets out all conditions and terms for any services this person or company will provide.
The distinguishing elements between the two also determine who gets rights through employment and who does not. Self-employed people don't have rights and benefits through employment, such as health insurance or retirement, because they are expected to personally maintain these provisions.
Other names you might hear used in connection with contracts for services include:
- Service agreement
- General service contract
- Service legal agreement
- Consulting services agreement
You can use a general contract for services document in these situations if:
- You will be providing services for another business or individual.
- You will be receiving services from another business.
A general contract for services can help prevent misunderstandings and establish positive business relationships. This type of agreement can help define the relationship between the business providing the service and the person or business receiving it. If one party disagrees, you will have a record of the agreed:
- Duration of services
It's important to use a service agreement, or contractor agreement, when you are performing services and want to make sure you're getting compensated and that your interests are well-protected. A customer should use one when hiring a business to perform a specific task. This agreement will detail the cost, duties, and confidentiality clause, if necessary.
How to Write a Contract for Services
- Start by identifying the service provider and customer. Be sure to include all contact information for all parties.
- Detail all services being provided under the agreement. The more detailed you are, the better chance you'll avoid conflicts down the line. An accurate description can also clearly explain what services the customer is getting and what the provider's duties are.
- Make a payment schedule detailing compensation provisions for the contract. Include pay rate, taxes (whether they're included or excluded), who will provide various resources, payment dates, and penalties for late payment or breaches.
- Include ownership of materials and who has ownership rights.
Include any terms regarding noncompetition or nonsolicitation. The customer must decide whether he or she wants the provider to refrain from soliciting additional business for a specified period. Is there a need for a confidentiality clause? Some customers prefer to have this to keep sensitive information or business information private.
Personalize your contract for services agreement. You can include a variety of clauses that relate to:
- Legal expenses
- Property return
IR35 Tax Legislation in the UK
IR35 was enacted in the United Kingdom to help combat potential tax avoidance by workers who contract their skills and services through an intermediary, without which they would be employees. You must understand the different types of contracts between agencies, clients, and employees and contractors to decipher whether they are within IR35 guidelines. Basically, an employer and employee agreement is a contract of service, whereas a client and contractor agreement is a contract for services.
Both types have specific responsibilities and rights, but they differ based on contract type. Contractors must be well-versed in their responsibilities and rights when they enter into an agreement between their limited company or contractor umbrella company and their business or end-user client. This is because it can affect IR35 status.
If a worker has a valid agreement for a contract of service with a business, then he or she is considered an employee for IR35 classification purposes. A contract for services is purely a business-to-business contract. The agency, or the client, is a buyer while the contractor's limited company or umbrella company is the supplier. You will not confuse the employer-employee relationship here. Contractors who understand issues around contracts of services versus contract of service are better suited to understand IR35.
If you need help with contracts for services, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.