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What to watch out for in contracts

When you’re contracting or self-employed, you aren’t covered by employment law — including government minimum standards. Carefully check your contracts before you sign. If you can, get a lawyer to help.

Your contract should set out not just the work you’re being paid to do, but how you’ll be paid for it.

You can’t raise a personal grievance if you and a client you work for have a disagreement. Make sure you agree how disputes will be resolved as part of your contract.

Never feel rushed to sign a contract - read and think about it properly.

Never feel rushed to sign a contract - read and think about it properly.

If you’re not confident about signing a contract, eg because you don’t understand all the terms, get legal advice.

General terms

  • What you’re expected to do — tasks you’ll perform, what you’ll deliver. You may see the word “services” used to describe this section, eg “Services to be provided”.
  • Where you’ll provide your services, eg at home, another location.
  • How much you’ll be paid, eg an hourly or daily rate, and when you need to invoice for your fees. This might be weekly, monthly or after you’ve completed certain projects or tasks. 
  • What expenses or allowances you’ll be paid, eg will you be reimbursed if you use your own car or your own tools, will you be reimbursed for food and accommodation if you travel?
  • How many hours you’ll work per day/week/month — this could be a range, eg up to 25 hours per week — and when you’ll work them, eg on weekdays between 9am and 5pm.
  • How long the contract will last — also called its term— and whether it can be renewed.
  • Who your client contact person will be.
  • Whether either party has the right to terminate the contract.
  • How disputes will be resolved — when you’re a contractor, you can’t raise a personal grievance if you and a client you work for have a disagreement.
  • Who will own any intellectual property that you may have developed as part of the contract.

Insurance or licences

  • If you need to have any insurance, eg professional indemnity.
  • Any licences you may need to do the work, eg full driver’s licence, fork lift truck licence.

Restrictions

  • Whether you can contact or work with the business’s clients and employees after you finish your contract – many contracts stop you from doing this for a specified time.
  • If you can sub-contract the services you’re offering, eg by employing another person to help you – clients may be happy for you to with their consent.
  • If you can share information about their products and services with people outside their business – confidentiality clauses usually say that you can’t.

Renewals and changes

If your client wants you to stay on after the end date of your contract, make sure you get it in writing. The same goes if your client asks you to do any work that is different to what you agreed in your contract.

Ask them for a new contract, or for a variation to your existing contract, eg an extra page — or schedule — that sets out the changes.

Cancelled contracts

You can generally only cancel a contract, based on the terms you’ve agreed. This applies to both sides — you or the person, or organisation, that has contracted you. A contract is legally binding, so it can be difficult for one party to cancel it if the reason is not set out in the contract’s terms.

If you want to challenge your contract ending before the date you’ve agreed, it would be a good idea to get legal advice first.

If you have a fixed-term agreement you're an employee and not a contractor.

If you have a fixed-term agreement you're an employee and not a contractor.

You should be entitled to the same benefits employers must legally offer permanent employees, eg a minimum number of days' paid holiday and sick leave.

Fixed-term employment agreements

You can only be taken on as a contractor if you’re truly an independent contractor, and not a fixed-term employee. Some organisations may offer you a fixed-term employment role, instead of a contracting role for short term projects or to cover for another employee’s extended leave, eg parental leave.

When someone offers you a fixed term role they should:

  • Explain why the role is only for a fixed term — there must be a genuine and credible reason. 
  • Specify when the term will end, eg after six months, when the project is completed, or when the season finishes, and give a detailed reason why it will end then.

As a fixed-term employee you’ll be entitled to all the same benefits employers must legally offer permanent employees, eg a minimum number of days' paid holiday and sick leave. Because you get these benefits, your rate of pay may be less than if you were carrying out work and invoicing your client as a contractor.

You’ll also have your tax and ACC taken from your pay — as well as any other deductions you’re required to pay by law, eg child support, student loans.

Check if it’s worth it

Before you decide whether to take on a fixed-term role think about:

Asking for more money

Your employer may offer you a fixed-term salary that is equivalent to that of a permanent employee. This is usually quite a bit lower than a contractor rate. Don’t be afraid to ask for more. Even though you’ll get benefits such as paid holiday and sick leave, you still have the uncertainty of finding new work when the fixed-term role ends. Ask to be compensated for this.

The amount of leave you’re entitled to will be in proportion to the length of your contract. If you’re unlikely to take advantage of paid leave, eg if you’re with an organisation for just two or three months, you may prefer to be taken on as a contractor and earn a higher hourly/weekly/monthly rate.

End date

Does your contract end at a time of year when it’s hard to get new contracts, eg Christmas? Consider asking your employer to extend your contract by a couple of months, if it does.