Independent Contractors: All You Need To Know About Contract Types And Terms
- Last updated: October 16, 2024
Whether you have just expanded to the African continent for business or have years behind you already, independent contractors are an undeniably attractive labour option. Often highly-skilled, gig workers or freelancers can remedy temporary labour shortages, fill in for staff on leave and bring in their own expertise and points of view as a relative outsider to the company – all without requiring paid leave, sick days, benefits, and other such considerations that full-time employees are typically entitled to. With the pandemic opening workers’ eyes to new ways of working, the gig economy is growing exponentially, with the number of global gig workers expected to hit 78 million in 2023 versus 43 million in 2018 according to a MasterCard study. As such, more and more Organisations are now working with individuals on a contractual basis – but companies must tread carefully.
While the advantages of such arrangements are genuinely significant, they are not without risks. Contracts, terms, and clauses must be diligently studied, or companies will be in for a rude awakening. Intellectual property rights issues, unexpectedly high invoices, and taxation problems are only some of the issues that businesses expose themselves to without proper contracts in place.
Read on to find out about some of the most common contract issues and how to avoid them with Africa HR Solutions.
The importance of contracts
By definition, a contract is a legally binding agreement that establishes, specifies, and regulates the rights and obligations of the parties involved. If the contract is breached, the maligned party is entitled to legal reparations.
Contracts are crucial to any business transaction as they offer clarity in business partnerships, thereby avoiding misunderstandings and preventing future litigations and disputes from happening. Legally, contracts also serve as proof of a transaction and make contractors legally responsible for delivering the defined work within specified terms. Not having legally-binding contracts is a costly move. Should an independent worker not deliver the product or services required of them, your company would have no means of enforcing respect of the terms and conditions agreed upon verbally. In short, contracts protect all parties involved from being maligned.
Independent contractor vs full-time employee
Before writing up a contract for an independent worker, businesses must first ask themselves one crucial question: is the person truly an independent worker, or do their role and responsibilities fit the description of a full-time employee instead? This is an important distinction to make. Because misclassifying an employee as an independent contractor is a serious offence which carries sanctions such as fines and employer reputation damage. Learn more about the risks of employee misclassification and how to determine the status of a worker here.
Popular types of contracts for independent workers
There are many different types of contracts for all types of workers, suited to their working methods, the services they offer and when they can provide the promised deliverables. Choosing the right type of contract to offer a potential worker will help you make the most of the agreement, better gauge your expectations and keep costs contained.
Fixed Rate Contract
This type of contract is typically used as a blanket solution. Rather than go into details and variables, both parties agree upon a fixed cost for a maximum amount of effort or work delivered.
Pay As You Go Contract
This contract type is best suited for work that involves time sheets or for deliverables that must be submitted at regular intervals.
Milestone Contract
Good for long-term arrangements, milestone contracts are written such that payment is made when a critical part of the work – or service – is delivered.
Of course, there are many more such types of contracts that will better serve your organisation depending on the type of work that is being carried out. Africa HR Solutions’ legal team is at your service to design contracts that your company can use to its best advantage.
Popular types of contracts for independent workers
There are many different types of contracts for all types of workers, suited to their working methods, the services they offer and when they can provide the promised deliverables. Choosing the right type of contract to offer a potential worker will help you make the most of the agreement, better gauge your expectations and keep costs contained.
Fixed Rate Contract
This type of contract is typically used as a blanket solution. Rather than go into details and variables, both parties agree upon a fixed cost for a maximum amount of effort or work delivered.
Pay As You Go Contract
This contract type is best suited for work that involves time sheets or for deliverables that must be submitted at regular intervals.
Milestone Contract
Good for long-term arrangements, milestone contracts are written such that payment is made when a critical part of the work – or service – is delivered.
Of course, there are many more such types of contracts that will better serve your organisation depending on the type of work that is being carried out. Africa HR Solutions’ legal team is at your service to design contracts that your company can use to its best advantage.
Table of Contents
Different elements of contracts
While contract terms and conditions differ depending on each individual situation, the following elements must always be present in every contract that is drafted:
Parties
The contract begins by identifying all relevant parties, including the independent contractor, the client or employing firm, and providing their contact details.
Timeframes
Most contracts include deadlines that must be met. The contract may include many deadlines for different work products, depending on the project’s scope, whereas other contracts may just specify a deadline for the finished result.
Confidentiality
If the project requires any confidentiality measures, they are described in this section.
Services
The specifics of the work the freelancer will accomplish are described in this section of the contract.
Consideration
The section regarding compensation will either list an hourly rate or the overall compensation for the project, depending on the type of project.
Termination
Depending on the project, certain contracts may have an “option to terminate early” clause. Most contracts feature a part that both the customer and the freelancer must initial to show that the task has been finished and payment made, essentially ending the contract.
Signatures
The contract must bear the signatures and dates of each of the parties stated at the beginning.
Important clauses
After covering the basics with the above terms and conditions, there are more clauses that you can add to protect your company’s interests.
Non-disclosure of information
When dealing with sensitive information, Non-Disclosure Agreement clauses are essential. They help to prevent information leaks and protect your data.
Non-competition clause
Non-competition clauses that prevent a freelancer from working with competitors make up some of the more basic terms of contracts. Even so, they must be carefully created to avoid the chances of any loopholes in the country in which the contract is made.
Non-solicitation cause
Similar to the non-competition clause, the non-solicitation clause prevents independent contractors from working with competitors either indefinitely or for a defined amount of time.
Intellectual property clause
When working with contract workers, many organisations may be surprised upon learning that the intellectual property of the work they commissioned belongs to the contract worker, and not to them. This can cause problems especially when it comes to diffusion across borders and use in different forms of media. However, intellectual property clauses are often quite complex and require expert knowledge to properly design them.