Being an independent contractor can be a great way to gain flexibility and control over your work schedule. Not to mention, you have the ability to choose the projects you work on.
But while you can choose projects that will be the most interesting or lucrative, that doesn’t necessarily mean you can choose projects that will be safest for your business. Indeed, the freedom that independent contractors enjoy is the same freedom that can expose them to legal and financial risks if they don’t have the proper protections in place.
So what do you need to know about legal risk as an independent contractor, and how can you take steps to protect yourself and your income?
Contracts Are Your First Line of Defence
The first thing to know is that contracts are your first line of defence. When you’re offering your services independently, the only thing between you and any potential disputes is a clear, well-drafted agreement that fully defines the scope of work and what’s expected of you.
Verbal agreements or vague emails aren’t enough if a disagreement arises, and your clients, no matter how well-meaning they are, will know this. A solid contract protects both of you by setting clear expectations from the start, reducing the risk of any misunderstandings, missed deadlines, or payment issues.
Insurance Is Key to Longevity
If you want to make it as an independent contractor long term, then reliable contractor insurance will be key to anchoring your business and protecting it from unexpected liabilities. Even with a contract, of course, there’s still a chance that things can go wrong. Perhaps your client claims damages, or a third party gets harmed as a result of your work.
You can say it won’t happen to you, but the truth is, over 40 million lawsuits are filed every year in the US, and many of these are being fought by businesses without the necessary insurance. The same businesses that assumed it wouldn’t happen to them and are now paying the price for that assumption.
Liability Is On You
Unlike employees, independent contractors are personally responsible for mistakes, accidents, or legal claims that arise from their work. With this in mind, it’s crucial to understand the full scope of your liability and take proactive steps to mitigate it.
This not only means having proper insurance and contracts, but following industry best practices at every turn, documenting your work thoroughly, and communicating clearly with clients. Remember, there’s no employer to absorb the risks here. You are directly responsible for your reputation, finances, and future opportunities, so make sure you protect them.
Taxes and Compliance Are Your Responsibilities
Just as you’re responsible for what might go wrong, you’re also responsible for handling your own taxes and compliance obligations. This includes filing income taxes, paying self-employment taxes, keeping accurate records, and following any industry-specific regulations, such as data protection rules, licensing requirements, or safety standards, depending on your field.
To make sure you don’t slip up, we’d recommend using strong accounting software or perhaps working with a tax professional to help you navigate deadlines and deductions. When it comes to compliance, we’d also recommend regularly reviewing your contracts and any applicable laws to ensure you’re operating within the rulebook.
Prepare, Prepare, Prepare
Lastly, we want to reiterate how easy it is for a dispute to be made against you. As we mentioned previously, tens of millions of lawsuits are filed every year in the US, and no independent contractor is immune to it happening to them, no matter how careful they are in getting things right. The best way to protect yourself, then, is to prepare in advance. Carry out regular dispute planning, and develop some strategies to address potential conflicts before they escalate.
By being proactive, you’re not reducing the likelihood of legal disputes, but you are reducing the likelihood that they will bite into your business and strip away your reputation, which can easily happen to contractors, even if they’re not in the wrong. Set aside some time to review your strategies, and in doing so, you’ll ensure that you can continue delivering your services with confidence and clarity.
