Last updated December 6, 2022
What is a Service Agreement?
A Service Agreement is a contract used between a service provider and a client (or customer) that outlines the exchange of services for compensation.
A Service Agreement describes the terms of service, and should include a description of the work, the price for the service, assurances, and the contractor’s and client’s contact information. A service contract can be used for one specific job or an ongoing position that doesn't have an end date when the contract is signed.
Service Agreements are usually necessary when a job’s terms become more complex or need a detailed explanation.
A Service Agreement is also known as a/an:
- General Service Contract
- Independent Contractor Agreement
- Consulting Services Agreement
When should I use a written Service Agreement?
Service providers should use Service Agreements any time they perform a service for a client. The agreement protects their interests and ensures they receive compensation. It’s a good idea to document the pay rate for services, invoicing frequency, and insurance clauses.
Clients should use a Service Agreement whenever they hire a service provider to perform a paid task. The agreement establishes the exact details of the arrangement, including compensation, duties, and confidentiality, if required.
What kind of service providers should use a Service Agreement?
A service provider is anyone who provides a service to another party. While it’s not mandatory for all service providers to use a Service Agreement, some common examples of service providers that use service contracts include:
How do I write a Service Agreement?
You can easily create a Service Agreement by filling out LawDepot's questionnaire. Using our template will ensure you complete the necessary steps:
1. State how long the services are needed
Start your Service Agreement by stating how long the contractor will need to provide the service.
The agreement can be for:
- A single job: As long as it takes to complete the job
- A fixed-term: A specified date and then comes to an end
- Indefinitely: As long as the work is ongoing
2. Include the state where the work is taking place
States may have labor laws that differ from others. Include which state the work is taking place, and LawDepot will customize your Service Agreement to meet your local laws.
The Fair Labor Standards Act governs federal labor laws. It’s also important to note that the Service Contract Act of 1965 dictates that for any contract in excess of $2,500 service providers must pay their employees minimum wage.
3. Describe the service being provided
Include an accurate description of exactly what the service provider will do for the length of the agreement. Providing a detailed description reduces the risk of misunderstandings later.
An accurate description of services gives the contractor and client a clear idea of what to expect.
For example, if a client hires a contractor to install an internet modem in their home, the Service Agreement might include that the contractor is responsible for:
- Providing the modem and affixing it
- Running Ethernet cables through the property
- Handling quality assurance to make sure the unit works properly.
Include the contractor’s and client’s contact information. State whether each party is an individual or organization, and include their names and addresses. You can list as many as four contractors or clients in your document.
Having the service provider's and client’s information in the Service Agreement helps it act as a convenient reference if either party needs to contact the other.
5. Outline the compensation
There are many factors to consider when deciding how compensation will be exchanged, including:
- Pay rate
- Sale tax
- Payment schedule
- Interest for late payments
- Consequences of non-performance
Billing details
A Service Agreement needs to include how much money the contractor will make for the job. Decide the rate the service provider will charge and include the payment amount. Also, specify if the amount will consist of a sale tax or whether the tax will be added later.
If the contractor and client agree on a different payment method, describe the compensation. For example, the client may prefer to pay with money and shares of stock.
Deposit
State the deposit amount if a deposit is part of your agreement.
A deposit is a sum of money that the client gives the contractor before work begins. It acts as security or collateral for the delivery of a service. Depending on the client’s trustworthiness and financial stability, a deposit is usually 10 to 50% of the total contract amount.
Payment Schedule
Describe when the client will make payments to the contractor. The options available depend on the duration of your contract. A one time job is usually paid when the job is finished. Higher value construction contracts often have a customized payment schedule based on completing various stages of the work. Open ended contracts with no fixed end dates feature periodic invoicing and payments.
Late payments
Set a specific time frame for how long the client has to pay the contractor after receiving an invoice. Typically, 15 to 30 days is sufficient time to pay an invoice. If the customer doesn't pay the amount they owe within the time frame, the contractor can apply an interest rate on late payments.
Reasonable late fees go up to 25% per year on unpaid sums. Usury laws prohibit excessive interest rates, regardless of the Service Agreement's terms. An interest rate that exceeds the maximum rate permitted by state law isn't enforceable.
6. State the agreement’s terms
A Service Agreement also needs to cover the terms and conditions of the working relationship between a contractor and customer.
Reimbursing expenses
There may be instances where the contractor needs to dip into their pocket to keep a project progressing (e.g., gas money for traveling or hotel accommodations).
State in your Service Agreement whether the client will need to reimburse the contractor for work-related expenses. If so, specify the guidelines for additional costs. For example, the client may prefer the contractor to seek pre-approval before doing any additional spending.
Intellectual property
Intellectual property is any work that is a creation of the mind. For example, music, logos, blueprints, software, etc.
Sometimes a contractor needs to get innovative while doing a job. Specify who will own the intellectual property produced during the service between the contractor and client.
Confidentiality
You may choose to include terms addressing confidentiality. This will depend on whether the client prefers to add these clauses to protect sensitive information about themselves or their business.
7. Include any additional clauses
LawDepot's Service Agreement offers users the option to include additional clauses. Some people might use this section to address factors like:
- Indemnity
- Return of property
- Liability
- Legal expenses
Adding these terms is optional and depends on your personal situation.
8. Describe the signing details
State the date the parties will sign the Service Agreement and whether any witnesses will be present.
If you’re unsure when the parties will sign the document, you can provide the date later. A blank space will be available at the bottom of your agreement.
