Key points contractors should look for in a contract

The April 6^th deadline has long since passed and the potential fallout from private sector IR35 is arguably yet to be fully realised by contractors and end-clients alike.

One thing to take comfort in as a contractor, is that the fundamentals of your engagements haven’t really changed that much. There are still key points in your contracts to look out for before you sign up to undertake any project or long-term engagement.

Due to the understandable fuss surrounding IR35, contract reviews have tended to focus on the implications of key points within contracts that might have an influence on a contractor’s IR35 status. What also needs to be considered prior to an engagement is the overall commercial aspect of the contract.

It’s common for many people to gloss-over when it comes to contracts and binding documents but it’s important to stay focused and ensure you fully understand your role so your engagement can be as successful as possible for you and your client.

To this end, we look at some of the key points that private sector independent contractors should consider now that they operate in a post-IR35 economy.

Make sure it’s a contract “For Services”, not “Of Service”

Firstly, what you need to look for is a contract that clearly states that it is “For Services” between the contractor’s limited company or the contractor umbrella company and the agent and/or end client.

If a contract states “Of Service”, then it is likely that it is a contract of employment which will place you, the contractor inside IR35. To learn more about IR35 and its potential impact on contractors and end clients click here to visit our IR35 Hub.

The IR35 Hub is packed with information and guides that contractors and end clients can benefit from and find value in.

Look for the contract term and termination details

The terms and provisions contained within a contract will typically apply to you throughout the term of your engagement. It is important to ensure the term (or duration) of the contract is clearly stated to ensure you are fully aware of the extent of your contractual obligations.

Payment terms

Your contract should set out the payment terms and conditions clearly, preferably including the process, such as how you invoice the hiring company, and the payment date.

Payment processes are different from one agency to another, and in-turn from one client to another, so it’s important to iron out this point at the outset to ensure you are paid on time and are not left out of pocket and frustrated.

You should also look out for any ‘small print’ which states the circumstances in which the hiring party might look to withhold or delay payment to you.

Know your contractual obligations

Contractual obligations have been under the spotlight for a few years now due to the off-payroll working legislation (IR35) and due to a number of high-profile court cases involving the obligations and the working practices of the contractor.

There will be numerous obligations set out in your contract that you need to follow during the term of your engagement, so you should read these carefully to ensure you understand them all.

These obligations typically include insurance, intellectual property, and confidentiality. However, they could also include exclusivity, which would mean that you need to look carefully for the following points:

• Control
• Right of substitution
• Mutuality of obligations

If your contract states that you will be working inside IR35, then one or more of these points will likely be present.

If the contract purports to be outside of IR35, yet one or all of these three key points appear the your contract, then it could be wise to engage in a contract review to clarify your position prior to signing the contract as you could find yourself working inside IR35 without realising it.

Start your contract review quote here

Restrictions

Identify any restrictions in the contract, such as post-termination restrictions and non-disclosure agreements. If you breach a post-termination restriction you could be liable for damage being sought from you and even the possibility of an injunction against you.

Indemnity and liability

As a contractor you must identify and clarify this party of your contract. An indemnity is a legally enforceable promise in which a party to the contract accepts the risk of loss that the other party to the contract may face in certain situations. A contract of this type means you will indemnify the agency or hiring party against losses arising from negligent advice and/or mistakes which cause them a financial loss, and from tax or employment claims.

You need to be fully aware of the exact extent of the indemnity provisions to ensure you’re satisfied with your potential liabilities.  More importantly, you need to ensure you are adequately insured (typically with professional indemnity insurance and public liability insurance) just in case.

If you are unsure, then it would be pertinent to engage in a contract review to clarify your position prior to signing the contract.

Start your contract review quote here

Professional Indemnity insurance (PI) and Public Liability insurance (PL) are typically requested as key requirements of contracts. You could even say that carrying PI and PL insurance helps you to win contracts!

The insistence by the hiring party for the contractor to carry one or both policies protects both the contractor, and the hiring party from any unforeseen risks, such as mistakes and negligent advice, and third-party personal injury or damage.

If you need Professional Indemnity and/or Public Liability insurance for your contract, we can offer both policies at competitive premiums via our quick online quote and buy facility.

Start your quick online insurance quote here

Location and flexibility

Where you work can be an important factor for many professionals and can lead to improved productivity. Location has become even more important since IR35 was introduced because if you are required to always work on-site then you could run the risk of working inside IR35 under the rule of ‘control’.

For some contractors, this will not be an option depending on their profession, but for those who can work remotely it would be sensible to enquire about remote working flexibility, even if it is for only one day a week.

You should also consider what a potential commute will mean to you. A long and stressful commute and the surroundings you are expected to work in can have a negative effect on the way you work. So, you need to be sure you are happy before you make your final decision and sign the contract.

Key Information Document (KID)

If you undertake contract work for an agency or for an Umbrella company, then you need to look for the KID. The KID, which was introduced in April 2020,  is an obligation on agencies to provide information about any deductions and fees to which agency workers – including via Umbrellas – are subject. It is designed to provide transparency about the deductions that will be made from the rate for the engagement¹.

There are examples of documents to be used to provide information to agency workers, workers paid by an Umbrella, and those providing their services via a Personal Service Company (PSC) here: https://www.gov.uk/government/publications/providing-a-key-information-document-for-agency-workers-guidance-for-employment-businesses

Download our handy contractor checklist pdf here 

Sources:

https://www.caunceohara.co.uk/ir35/

https://www.contractorcalculator.co.uk

1. https://www.caunceohara.co.uk/ir35/guides/the-essential-guide-to-ir35-in-april-2021-part-5/
2. https://www.caunceohara.co.uk/ir35/category/information/

Related Articles:

What is my IR35 status?

The Essential Guide to IR35 in April 2021 – Parts 1 to 5

Click here to find out more about IR35 and contractor contracts in our IR35 Hub

Author Phil Ainley, Marketing Manager