Our guest contributor, attorney and entrepreneur Dorcia Carrillo, shares some advice on the legal and business aspects of side hustles.
In this new economy, workers no longer expect to retire from the company at which they started their careers. Instead, people are moving from employer to employer and often participating in the gig economy. The gig economy, as defined by Investopedia.com, is characterized by temporary flexible jobs performed by independent contractors, freelancers, or consultants (side hustles). Independent contractor, freelancer, and consultant differ slightly, but for the sake of ease, I will use consultant to collectively refer to these three variations of a side hustle. Side hustles are by no means new but they are becoming much more widespread and respected than they were a few decades ago. In the early 2000s, the only people I knew who survived as freelancers or consultants were writers and IT professionals. Now people with other creative and technical skills are building their side hustles into respected brands.
I recommend that entrepreneurs create and use a template consulting agreement for their professional service side hustles. A standard agreement can be a competitive advantage and is an important tool for expanding a side hustle into a valued business. Of course, not every entrepreneur needs to have a written agreement in place for every project. Furthermore, consulting agreements will vary across services and sectors. The purpose here is just to highlight some, not all, of the key provisions that a consultant should consider including in a template consulting agreement.
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Define the Business Relationship
First, a consulting agreement should state the relationship between the parties. It may seem obvious that a consultant is just that, but it is absolutely worth noting. More clearly, a consultant is not an agent or employee of her client and a consultant typically acts under her own discretion. These points are important because they may affect how a consultant operates. For example, a consultant is not paid as an employee and, therefore, may be subject to self-employment tax. Moreover, if the consultant is operating as an incorporated entity, the corporation rather than the individual will be signing and acting under the agreement.
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Define the Scope of Work
Second, any consulting agreement should clearly state the services the consultant will provide. It is critical to identify what services are included in the scope of work. For example, a web developer should identify what if any maintenance, technical support, or upgrade services will be provided. It is also a good idea to note what services will not be performed. A well written scope of work, or statement of work as it is sometimes called, is the best way to avoid or alleviate confusion about performance. As a drafting tip, I recommend that on-going or complex project work be detailed in a separate attachment referenced in the consulting agreement rather than detailed in the main document.
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Set the Payment Terms
Third and equally as important as the scope of work, are the payment terms. I know that negotiating a price for services is often the most difficult aspect of reaching an agreement. For this reason, it is imperative to precisely document the agreed upon pricing terms. A template consulting agreement should have a provision to note payment amount, frequency, and schedule. Additionally, the consultant must ensure that invoices are consistent with the terms of the agreement. If the agreement provides for an hourly rate, related invoices should be billed by the hour. As with work scope, the actual payment terms may be a referenced attachment to the agreement if the terms have to be explained in more than a few sentences.
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Protect Intellectual Property
Lastly, a provision for intellectual property is another clause that some entrepreneurs, namely those who create or develop copyrightable works or patentable technologies, need in their consulting agreements. Intellectual property is any product of the human intellect that the law protects from unauthorized use by others. Some examples include music, software, and tools. Importantly, a consulting agreement can identify whether the consultant or client has rights to relevant intellectual property and what those rights are. All sorts of arrangements can be made for consultants and their clients to use, share, buy, sell, license, and reproduce the relevant intellectual property.
A template consulting agreement does not have to be a long complicated document. As stated, it should at least address the consultant-client relationship, scope of work, payment terms, and intellectual property rights. Other clauses that may need to be included relate to warranty, indemnification, assignment and transferability, and governing law. I recommend speaking with a knowledgeable attorney about your specific legal needs. Alternatively, automated services like Rocket Lawyer are available to get started with a basic contract. At the very least, I encourage consultants to carefully review and negotiate the terms before signing any consulting agreement that a potential client presents.
Happy consulting!
Dorcia Carrillo manages a business and corporate law firm, the Law Office of Dorcia Carrillo PLLC, where she guides clients from entrepreneurs to executives through the intersection between business deals and legal documentation. Dorcia likes helping growing businesses with practical legal advice and workable solutions. She is a New York Giants fan and ardent supporter of the Alzheimer’s Association.
