Independent contractors: Avoid trouble by putting client agreements in writing.

When you agree to perform services for a client, you are entering into a legal contract -- you promise to do the work, and the client promises to pay you for it. Many independent contractors rely on handshake agreements with their clients. Instead of writing down the deal, the contractor and client discuss what the contractor will do and what the client will pay, and that's the end of the story.

Until the deal falls apart, that is. If the client refuses to pay, insists that you agreed to perform more or different work, says that you agreed to charge less than your usual rate, or otherwise won't live up to his or her end of the bargain as you believed it to be, you're in a bind. You could try to convince a court that your version of the contract is correct, but it will be your word against the client's, and there's no telling whom a judge or jury will believe. Whether the client really does remember the agreement differently than you or is intentionally trying to rip you off, you don't want to end up in this situation.

Fortunately, there's an easy way to avoid these problems: Always get your agreements in writing. Using written contracts will help you prevent misunderstandings, clearly define the expectations you and the client have about the job, and prove your case in court, should it come to that.

What's more, a written client agreement can help you establish that you are an independent contractor, not the client's employee -- which will be very useful if the IRS or another government agency questions your status.

What Service Contracts for Clients Should Include

A written client agreement should cover at least these topics:

• the services you will perform
• how much you will be paid
• how and when you will be paid (for example, will you receive a set fee or an hourly rate, will you be paid up front, at completion, or in installments, will the client have to pay a fee for late payments, and so on)
• who will be responsible for paying expenses (most ICs pay their own)
• who will provide materials, equipment, and office space (again, most ICs provide their own, but there are exceptions)
• how long the agreement will last
• the circumstances in which you or the client have the right to terminate the agreement, and
• information relating to your independent contractor status -- that is, that you are an independent contractor, that you have all of the necessary permits and licenses to do the work, that you will pay your own state and federal taxes, and that you have your own liability insurance.