Terms and Schedules of Payment under the Contractor Agreement
Payment terms and schedules are key to any contractor agreement determining the settlement procedure between the customer and the contractor. A clear understanding of these provisions helps to avoid disputes, minimize financial risks and ensure timely completion of work. In this guide, we will look at the contractor agreement terms with an individual, the main types of payment terms, and possible payment schedules, and also analyze important nuances that must be considered when concluding a contractor agreement.
What is a Contractor Agreement with an Individual
The contractor agreement refers to civil law contracts. The contracting authority may conclude such an agreement with an individual contractor when the work involves a specific result and is a one-time job. For example, the result may be software development, a finished article, or furniture repairs.
The individual with whom the contractor agreement is concluded does not become an employee of the company and is not obliged to obey the rules of the internal labour regulations, even when performing work at the customer’s location.
When it is Impossible to Conclude a Contractor Agreement with an Individual
In some cases, regulatory authorities may fine companies that conclude contractor agreements unreasonably. You do not need to enter into a contract in the following cases:
- When the position or job for which the work is supposed to be performed, services are provided by the Unified tariff and qualification reference or Unified qualification reference of professions. That is when hiring employees under employment contracts to perform work is necessary.
- When a contractor needs a license to perform work or provide services (the type of activity is licensed).
Terms of the Contractor Agreement
Certain terms must be present in the contractor agreement with an individual:
1. The subject of the agreement.
It is necessary to describe the specific result of the work or services that the contractor transmits to the customer.
2. The deadline for completing the work or stages of work and the start and end dates of the work
3. The order of payments.
Payments in Belarus are allowed only in Belarusian rubles. The contractor agreement may specify that payment is made in Belarusian rubles equivalent to a certain amount in a foreign currency or in conventional monetary units. In this case, the contract may specify the exchange rate of this currency or a conventional unit or use the official exchange rate set by the National Bank of Belarus on the day of payment.
Later in the article, we will look at examples of payment schedules under a contractor agreement. In any case, we recommend that you specify the total amount of the agreement in Belarusian rubles, foreign currency, or conventional units.
4. Payment of social contributions by the customer.
The customer must pay contributions to the Social Protection Fund from the contractor’s remuneration.
5. The condition of safe working conditions.
6. Cases when the agreement can be terminated prematurely.
7. The customer’s penalty for late payment for work is not less than 0.15% of the unpaid amount for each day of delay.
8. The condition for payment of contributions to Belgosstrakh when the contractor performs work at the customer’s location.
9. Other conditions, such as the contract terms, the place of work, and how the work’s result is transmitted to the customer.
What Can be the Payment Schedules under the Contractor Agreement
The parties can agree on various payment schedule options when concluding a contractor agreement between a company and an individual. The choice of the optimal scheme depends on the volume and timing of the work, the customer’s financial capabilities, and the level of trust between the parties. Let’s look at the main options with examples.
1. Advance payment and final settlement
This option assumes that the customer makes an advance payment before starting work and pays the remaining amount after completion.
An example of a payment schedule:
- 50% of the contract amount is paid as an advance payment before the start of work.
- 50% – after completing the work and signing the acceptance certificate.
This method is convenient for the contractor, as he receives part of the payment in advance. It also benefits the customer, as the final payment is made only after the contractor has fulfilled all obligations.
2. Payment by stages of work
For long-term and complex projects, it is convenient to split the payment into several parts related to the key stages of the work.
An example of a payment schedule:
- 30% advance payment before the start of work.
- 30% – after completing the first stage (MVP preparation).
- 40% – after completing all work and signing the acceptance certificate.
This option reduces the risks for both parties: the customer pays only for the completed stages, and the contractor receives regular financing during the work’s execution.
3. Uniform monthly payments
You can arrange monthly payments in equal installments if the project lasts several months.
Example of a payment schedule:
- The total amount of the contract is divided by the number of months of work performed.
- Payment is made at the beginning or the end of each month.
This option is convenient for the customer, allowing you to distribute the load evenly on the budget. The contractor should consider possible payment delays and include penalties for delays in the contract.
4. Payment upon completion of work
This payment schedule assumes that the customer pays only for the completed and confirmed amounts of work.
Example of a payment schedule:
- The contractor provides the customer with a monthly certificate of completed work.
- Payment is made within the agreed period (5-10 days after signing the act).
This option benefits the customer, as he pays only for the work already completed. The contractor must also consider the risks of delayed payments and require the customer to sign the acts on time.
5. Full post-payment
In some cases, the contractor agrees to full payment after completing the work.
Example of a payment schedule:
- 100% of the contract amount is paid within three business days after signing the acceptance certificate.
This option benefits the customer, as he pays only after the contractor fulfils all his obligations. However, this can be risky for the contractor, so this scheme is rarely used, most often when there are guarantees of the customer’s solvency.
6. Payment with retention of the security deposit
Some customers require security deposit of part of the payment to protect against possible defects when the contractor performs particularly complex technological work, and a warranty period is set for the work’s result.
Example of a payment schedule:
- 90% is paid upon completion of work.
- 10% is retained for the warranty period (3-6 months) and is paid only if no claims exist.
This option protects the customer’s interests but may be inconvenient for the contractor, as some money remains frozen for a long time.
7. Partial installment payment
If the customer is not ready to pay the entire amount at once, the parties can agree on installment payments.
An example of a payment schedule:
- 50% advance payment before the start of work.
- 30% – during the execution of work (for example, a month after the start).
- 20% is paid in installments within 3-6 months after completion of the work.
This option is convenient for the customer but involves the risks of delayed payments for the contractor, so it often requires additional agreements or guarantees.
8. Full prepayment
If the contractor is fully trusted, the customer may include in the contract a condition for full prepayment before the start of work (provision of services).
This condition is, of course, beneficial to the contractor. Still, the customer needs to think about how to hedge against the possibility of the contractor’s failure to comply with the contract terms, for example, by ensuring the fulfilment of obligations with a pledge or a penalty.
The choice of the settlement schedule depends on the nature of the work, the financial capabilities of the parties, and the level of trust between them. In practice, combined schemes are most often used, which ensure a balance between the interests of the customer and the contractor. It is important to clearly specify the payment terms in the contract to avoid disputes and payment delays.
An example of a Payment Schedule for a Contractor Agreement
The payment schedule under a contractor agreement between a company and an individual may look like this:
1. Initial payment: 20% of the project’s total cost. This payment is made after signing the agreement and confirming its terms.
2. The first stage of work: 30% of the total cost. Payment is made within three business days after completing the first stage of work (for example, after analyzing the requirements and preparing the project documentation).
3. The second stage of work: 30% of the total cost. It is paid within three business days after completing the main work (for example, developing the first version of the software).
4. Final stage: 20% of the total cost. Payment is made within 10 business days after all work is completed and the project is delivered to the customer, including the elimination of possible shortcomings and bugs.
5. Early completion bonus (optional): up to 10% of the total cost if the project is completed ahead of schedule and without losing quality.
Payments can be linked to specific dates (schedule of work, stages of work) and provide for the possibility of adjustments in case of changes in the scope of work.
What Should Not be Included in the Contractor Agreement
Make sure that your contractor agreements do not contain the following conditions and formulations:
- About the hourly payment for the work done.
- The wording “hired”.
- The words “dismissal” and “salary”.
The listed conditions and formulations may result in the relationship being recognized as an employment relationship, and the company will have to pay a fine.
Conclusion
Proper preparation of payment terms and schedules under the contractor agreement plays a key role in the successful performance of work. Clarity in determining the timing, amount, and payment stages helps avoid many legal and financial risks for both the contractor and the customer. It is important to consider all the specifics of the project or other work that the contractor must perform, be attentive to the rights and obligations of the parties, and monitor compliance with the contractor agreement terms at all stages. Properly designed payment schedules ensure stability and trust in business relationships, which is the key to the successful implementation of the project.
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