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Are notice periods in contractor or freelance contracts a good idea?

Posted by Crunch Accountants on Jan 2nd, 2019 | Contracts

Are notice periods in contractor or freelance contracts a good idea?, image of someone writing

When putting together a contract for a new freelance client, there are lots of clauses you should consider. Things like payment terms and kill fees should be on your radar, but what about notice periods?

On the face of it, an equal right for you and the client to step out of a contract looks like a good thing to have. But are they really worth including?

Here’s are a couple of important things to think about when you’re deciding whether to include a notice period in a freelance contract.

The argument against contractual notice periods

IR35 is a law introduced to combat tax avoidance by workers supplying their services to clients via an ‘intermediary’ (such as a limited company) who would otherwise be an employee.

Of course, a full-time employee has to have the right to receive notice if they’re being let go, and in turn, also has to give notice of their intention to leave employment.

If your contract has no notice periods in it, then clearly you aren’t an employee, which can be beneficial if HMRC decides to investigate your IR35 status.

If your client has to give you notice, that implies that they potentially have to pay you for working when, in fact, there’s no work for you to do. After all, if there were, they wouldn’t be letting you go.

That, in turn, implies a degree of Mutuality of Obligation – a bad thing if you’re trying to stay outside IR35.

If you’re looking for more information on IR35, don’t forget to check out our IR35 hub, where you’ll be able to find all of our resources on the subject. From business guides to jargon-free Knowledge articles, we have all the information you need – plus any further support you may require from our resident experts.

Free IR35 guide

The argument for contractual notice periods

As a small business owner, you’d obviously like to be able to drop a contract for any number of reasons. The problem is, if you’re being paid to deliver something and that something hasn’t yet been delivered, why are you looking to leave?

Would you take on a builder to fit your new kitchen knowing that they could decide halfway through that they wanted to leave? Probably not. That’s why substitution clauses can be handy in these situations: if you have to get out, you can provide an alternative supplier.

From the client side, clearly, they want you to stay until the end of the agreed contract to do the job. Equally, they want to be able to drop you instantly if your services are no longer required; that’s why they’re using a contractor in the first place.

Some agencies or clients may suggest that you need to give your client a number of weeks notice of leaving, while in turn, they only need give you a few days notice. You may not wish to agree to this, but some clients believe that it covers the business risk to both parties in a reasonably fair manner. From your perspective, it should help clarify your IR35 position.

Negotiating a settlement

As a freelancer or contractor, you have no right to a notice period, but that doesn’t mean the contract can’t be terminated early by your side – you just have to negotiate a settlement position that suits both sides.

But consider this: elsewhere in that contract will usually be a clause that the engagement can be terminated with immediate effect at the client’s sole discretion for any number of reasons. So like it or not, you actually never do have an effective notice period from the client anyway.

Putting together a freelance contract?

Check out our article “Eight clauses your freelance contract shouldn’t be without” for some helpful tips on what else to include.

Freelancing for Beginners - a guide

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