Service Agreement vs Freelancer Contract: Which Do I Need?

The Core Difference

A freelancer contract engages an individual contractor for a defined project with specific deliverables. A service agreement governs an ongoing B2B relationship between two businesses - typically involving SLAs, liability caps, and commercial protections beyond what a freelancer contract covers. The distinction matters because the legal considerations, risk allocation, and commercial terms are fundamentally different.

When to Use a Freelancer Contract

Use a freelancer contract when you are engaging an individual - a designer, developer, writer, consultant, or other specialist - for a defined piece of work. The contract should define the scope, deliverables, timeline, payment terms, IP assignment, and confidentiality obligations. It should also be structured to demonstrate genuine contractor status under the Karshan five-step test, as Revenue is actively scrutinising freelancer arrangements.

Key characteristics of a freelancer engagement: the individual controls how the work is done, can work for other clients, provides their own equipment, is responsible for their own tax affairs, and delivers specific outputs rather than making themselves available for a set number of hours.

When to Use a Service Agreement

Use a service agreement when you are engaging another business - an agency, IT provider, cleaning company, managed service provider, or consultancy - for ongoing services. Service agreements typically include: a scope of services with measurable standards, SLAs with service credits for underperformance, a liability cap (commonly 12 months' fees), professional indemnity insurance requirements, IP ownership and licensing terms, a GDPR data processing addendum if personal data is involved, and structured termination with handover obligations.

The key marker is that you are contracting with a business entity for ongoing services, not an individual for a project.

Liability and Insurance

This is where the two documents diverge most sharply. A freelancer contract typically does not include a liability cap - the freelancer's liability is usually limited by practical reality (they do not have deep pockets). A service agreement should include an explicit liability cap, commonly set at 12 months' fees or the total fees paid under the agreement. This protects both parties and is often required by professional indemnity insurers.

Service agreements should also require the provider to carry professional indemnity insurance and provide evidence of coverage. This is standard for IT providers, consultancies, and professional services firms.

SLAs: Only in Service Agreements

Service Level Agreements - measurable standards for uptime, response times, resolution times, and service quality - only belong in service agreements. They define what "good service" looks like objectively, and provide remedies (typically service credits) when standards are not met. SLAs protect the client by setting expectations, and protect the provider by defining the standard they must meet (rather than leaving it vague and disputable). Freelancer contracts do not typically include SLAs because the engagement is project-based, not ongoing.

The Bottom Line

Hiring an individual for a defined project? Freelancer contract. Engaging a business for ongoing services? Service agreement. When in doubt, ask yourself: am I paying for outputs (a logo, a report, a website) or for ongoing capability (IT support, cleaning, consulting hours)? Outputs point to a freelancer contract; ongoing capability points to a service agreement.

This is a self-service document generation tool. It does not constitute legal advice. For complex or high-value situations, we recommend consulting a solicitor.