Did you know that a whopping 56% of startups worldwide have outsourced to remote workers? Not only is remote work growing increasingly more common in what many are calling the advent of the “gig-economy”,  industry experts are predicting that remote working will effectively “rival fixed office locations” by the year 2025.

With this rising trend comes an increased need for businesses to understand the legal aspects surrounding contracting remote workers. As a result, I’ve created this article with the purpose of breaking down everything you need to know on the fundamentals of a solid virtual services agreement, including various tips to help you ensure your business is adequately covered.

What is a Virtual Services Agreement?

A virtual services agreement is a document between two parties, generally the virtual services provider and client, that works to establish a contractual working relationship between the two. Virtual services agreements can be used for anything from hiring a virtual assistant, to contracting out to another business for specialized work such as digital marketing or content development.

The Ongoing Theme: Independent Contractor vs. Employee

One extremely common theme I’ve seen throughout my experience in practicing law and researching cases is the difference between an employee and an independent contractor. This, in my opinion, is the biggest type of immediate risk that businesses within the industry face. This holds true even more so for companies which specialize in hiring virtual assistants and contracting them out to clients.

Ensuring that the terms of your virtual services agreement will cover you in the event your company is audited by the IRS is of paramount importance. You want to make sure that the language stated in these agreements explicitly illuminates the various reasons why your virtual services provider is not an employee, but categorized as an independent contractor.

Important factors influencing the effectiveness of your virtual services agreements are as follows:

Degree of Control

When dealing with virtual services agreements, you want to ensure that the language in your contract shows that you are treating the virtual team member the exact same as you would a stand-alone business.

For example, if I call a roofer to do repairs on my home, I’m not going to be exerting a significant amount of control over how they’re doing their job and what steps they take to get the task completed. I assume that the contractor is competent in their field and capable of performing the duties assigned to them without my direct influence.

The same scenario applies to the relationship between you, the client, and the individual or business with whom you are contracting services from.

You cannot in any way, shape or form exhibit any sort of micro-managerial control on your end that would confuse the association with being that of an employer-employee relationship.

Opportunity for Profit and Loss

An independent contractor has the right to access additional opportunities for profit and/or loss. In fact, this is one of the main factors that the Courts consider when deciding whether or not to classify a relationship as that between an employee and employer.

As a result, it’s important to include language in your virtual services agreement that specifically shows the individual being contracted is not under restrictive control from the primary contractor when it comes to seeking additional opportunities for profit.

While I understand there is a tendency to hire contractors on an hourly basis, you’re in a better position to compensate individuals on a per project or milestone basis simply because it is less restrictive and gives them a greater deal of autonomy in their day-to-day activities.

Degree of investment

As a result, look for contractors that have invested heavily into materials such as their own website, business cards, social media page or design software, for example, if they are a graphic designer.

You don’t  pay a carpenter for their tools when they come to your house to do work. You expect them to have invested in their own set of tools and to be properly prepared for the project at hand. The same scenario goes when it comes to your relationship with an independent contractor. Any form of investment on the primary contractor’s end could result in the relationship being construed as an employee-employer relationship.  

With that being said however, it’s perfectly fine for you to allow the contractor to have access to certain software or systems that the company is already paying for and wants the contractor to have access to. An example could be a company allowing a content developer to gain access to their content management system.

Every independent contractor, including a virtual assistant, needs to have shown that they have made a substantial personal investment in their own business. I know what you’re thinking – isn’t the amount of time they’ve put into developing themselves within their profession considered a substantial investment? Unfortunately, according to case law, time alone is not sufficient enough for this to be applicable.

Permanence of Working Relationship

Many times a business will find a contractor that they absolutely love working with and as a result they will bring them onboard for an extended period of time.

While this is understandable, it isn’t advised. The longer the working relationship is,  the more it is going to be considered an employee-employer working relationship. If you become attached, I highly recommend bringing the individual on-board as an employee or sticking to a project-based relationship within your virtual services agreement. Long-term, ongoing work is a slippery slope.

Skills and Training

There should be absolutely no training processes involved when a company onboards a virtual team member. You train employees – you don’t train independent contractors. You can show them the lay of the land and explain how they can gain access to various systems or software, but that should be the extent of the onboarding process.  Any further efforts to train a new team member opens you up to liability.

Also, it’s worth mentioning that while many companies may want to utilize virtual team members for taking over menial tasks such as database updates, answering emails and drafting correspondence, they may be opening the door to further scrutiny regarding the nature of the relationship.

Generally, the more complex the task at hand is and the greater degree of skill other party has, the more likely the relationship will be classified as one between a client and independent contractor.

Indemnification

An indemnification clause is a provision that essentially commits one or both parties under contract to compensating the other for any potential “harm, liability, or loss arising out of the contract.” These are absolutely essential to include in your virtual services agreement to protect you from any potential liability in the event responsibilities are not upheld on one end or the other.

Social Media

It’s important to note that social media poses a substantial risk to companies contracting out to virtual team members.

Include language in your virtual services agreement or have a social media policy in place to reference regarding activities on social networks when applicable.

This is for your own self-preservation. For one, you never want your virtual talent to accidentally disclose confidential information about the company because they weren’t aware the information was confidential in the first place.

Secondly, you want to ensure that there are rules and guidelines associated with posting which include explicitly banning potentially discriminatory, abusive or questionable language that can open you up to public scrutiny.

Additionally, it’s important to consider the various SEC (Securities & Exchange Commission) and FTC (Federal Trade =Commission) regulations associated with disclosing certain types of information (i.e. advertising on social media).

This is especially the case if you are a publicly traded corporation as you could easily find yourself in direct violation of a statute over a seemingly insignificant Facebook post.

For example, when working with influencers, it’s mandatory for companies to ensure that the influencer discloses they are being sponsored or paid for their post  with the use of certain phrases and hashtags such as #ad or #sponsored.

The truth of the matter is that there isn’t exactly a ton of case law on the topic due to the fact that most companies have yet to have their wrists formally slapped for violating FTC regulation surrounding unlawful advertising on social media.

However, my goal is to ensure that every company I speak with performs their due diligence and remain proactive as opposed to reactive.

You never want to end up being the poster child of what not to do – so take caution and use care when it comes to social media use.

Conclusion

The opportunities for remote work have grown an amazing 140% since 2005. This number shows the remote workforce expanding nearly 10x faster than the rest of the general workforce or self-employed population at large.

And who can blame people? Contracting with remote workers has been shown to increase a company’s access to desirable talent, boost workplace productivity, minimize costs associated with managing employees and increase employee retention by as much as 10%, according to Gartner.

However, with the rise in the remote workforce, comes an increasing responsibility from employers and employees alike to remain well-versed in the various rules and regulations surrounding such contracts. So, if your company plans on scaling with the help of a virtual team, or you, yourself, have thought about contracting out your services, keep this article in mind to ensure that you create the most effective virtual services agreement possible.

Do you have any questions or concerns regarding virtual services agreements? Let me know in the comments below and I’ll be more than happy to provide insight!

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