How to Create a Contract for a Fractional Work Engagement

Are you about to sign a contract for a fractional work engagement? You’ll want to use an Independent Contractor (IC) Agreement for this. It’s the gold standard for all types of flexible work engagements like freelance, consulting, fixed projects, and fractional work.

This Playbook is designed for both fractional workers AND for companies. You’ll walk away with the understanding of what a fractional contract should look like, how to create or adapt one, and the best practices for mutual success. It covers things specific to fractional work like setting the monthly retainer and payment terms, including a scope of work, cancelling the contract, and more.

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How to Create a Fractional Contract

Either the fractional worker or the company can create the contract. For fractional workers, it can be a small value-add to come ready with a clean, fair contract ready to sign. On the flip side, some companies have rules around only using their lawyer-approved contracts.

Either way, it starts with an Independent Contractor (IC) Agreement, as this will serve as the “bones” for the contract. If you have one already that you like, then great. You can use that.

Our Recommended Template

We recommend this one from Common Paper. It was developed by well-regarded lawyers. They do a great job of walking you through the “why” behind the contract, and how to use it.

Customizing the Template

Regardless of template, there are several fractional-specific matters that you’ll ideally want to address in a fractional contract. They include things like the contract length, compensation & payment terms, scope of work, and more. We cover all of this throughout the rest of this playbook.

To customize your IC agreement to fit your needs, there are two good options:

1. Hire a lawyer to make the modifications to the template
2. Use ChatGPT (or your LLM of choice) to recommend language updates for you to incorporate into your contract template*

* NOTE: Obviously, this is done at your own risk. ChatGPT is not a lawyer.

Whether you’re a company or a fractional worker, if the fractional contracts you’re signing are totalling > $200K in value per year, it’s probably worth paying a lawyer a few grand to ensure you’re better protected. If you’re just starting out, or your contracts are lower in value, ChatGPT is, in our non-legal opinion, a totally reasonable place to start.

Now let’s dive into some unique aspects of fractional work, and how an IC Agreement can be made to better reflect this type of work, so that both parties are mutually protected.

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Time Length of a Fractional Contract

Fractional work is designed to be ongoing in nature, and so there are two common ways of handling contract length to account for this.

• Month-to-month: This is a monthly contract that automatically renews each month, unless cancelled
• 3-month contract: This is a contract with a 3-month length, after which it’ll need to be renewed again

There are pros and cons to both, based on the flexibility desired by both parties. When in doubt, Fractional Jobs recommends a month-to-month contract for its extra flexibility. Once a working relationship has developed, longer-termed contracts like 6 months or even 12 months start to become more common.

If you’re starting a trial, you can either go with a 1-month contract or month-to-month contract, so long as either party can terminate the contract after the first month (which basically makes it equivalent to a 1-month contract).

Tip: If you’re using our recommended Common Paper IC Agreement, you’ll want to modify the section under “Term & Termination”.

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Compensation & Payment Terms For Fractional Work

There are two common ways to compensate fractional talent, a monthly retainer or an hourly rate. This should be clearly stated in the contract.

Tip: In the Common Paper IC Agreement, this is done in the Statement of Work section.

Payment Terms

The payment terms dictate the timeline by which the fractional worker gets paid.

Some fractional workers request to be paid upfront, before work begins. This model is the standard for agencies, too. Other fractional workers are okay being paid after the work starts, so long as payment is paid promptly on invoicing. This approach is common as well because it mimics how companies pay full-time employees (after the work is completed, but promptly and on time).

Avoid Net 30+ payment terms (meaning the contractor gets paid 30 days after sending the invoice) at all costs. This creates unfair cash flow problems for fractional workers.

Either agree for the fractional worker to be paid up front before work begins, OR agree to prompt payment on receipt of invoice (e.g. Net 7).

Tip: In the Common Paper IC Agreement, this is also done in the Statement of Work section.

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Scope of Work for Fractional Contracts

Most independent contractor agreements include a scope of work, and fractional work contracts are no different. This is NOT the same as a proposal. We cover this in our Playbook on proposals here.

For the contract’s scope of work, some choose to be detailed by either mimicking the proposal language or attaching the proposal as an appendix. Others choose to keep the contract scope high-level, outlining a few key responsibilities in vague terms (but still relying on the proposal as a non-legal contract for what’s expected).

The level of detail in the scope of work is up to both parties and what they’re comfortable with.

Tip: In the Common Paper IC Agreement, this is covered in the Statement of Work section called “Services”.

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Time Commitment in Fractional Contracts

Because fractional work is part-time work, it’s common to specify a rough time commitment in the contract, measured in hours, on a weekly or monthly basis. This language is often paired with the compensation as well. Examples include:

• Company agrees to pay Contractor $10,000 per month for up to 10 hours per week of work
• Company agrees to pay Contractor $200 per hour for 5 hours per week of work

This is to manage the expectations of both parties about roughly how much time the fractional worker expects to dedicate to the company. Without this, the chances for miscommunications, disappointment, and a soured relationship increase significantly. For more details on discussing a time commitment (and why we recommend it despite some fractionals thinking it's not necessary), see our Playbook section “What to Include in a Proposal”.

You may also want to consider specifying an hourly rate should the work consistently exceed the agreed time commitment for a monthly retainer, with language like: “Should the time committed exceed 40 hours in a month, additional hours will be billed at $200 / hr if mutually agreed upon in advance.”

Tip: In the Common Paper IC Agreement, this is covered in the Statement of Work section called “Rate”.

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Cancellation Clauses in Fractional Contracts

A cancellation clause allows either party to end the contract if needed. They’re exceptionally common in fractional work contracts. And they’re usually mutual - meaning the cancellation terms apply equally to both parties, the company and the fractional worker.

For month-to-month contracts, it’s very common to have a 30-day cancellation clause or a 15-day cancellation clause. One party gives notice to the other that the contract needs to end in 30 or 15 days.

Even for fixed-term contracts, e.g. a 3-month contract, it’s common to have a cancellation clause, though these tend to be more custom, and may have more rules around them regarding when a cancellation is acceptable.

Unless there is good reason, cancellation clauses should always be the same for both parties.

Tip: In the Common Paper IC Agreement, this is covered in the “Term & Termination” clause. However, be aware that it only allows for the Company to cancel with 30 days notice, not the Contractor. We highly recommend modifying this to allow for mutual cancellation.

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Mutual NDA in Fractional Contracts

A mutual NDA means both parties agree to keep confidential information shared during the engagement private and to use it only for purposes related to the work. In fractional engagements, this is often the fairest and most accurate approach since sensitive information can flow in both directions.

It typically includes standard carve-outs, such as information that is already public, independently developed, or or obtained elsewhere. It should also require each party to take reasonable steps to protect confidential information and to return or securely destroy materials when the engagement ends.

Tip: In the Common Paper IC Agreement, the NDA is effectively covered by the “Confidentiality” clause, but be aware that this is a one-way NDA only and does not protect the Contractor. We highly recommend modifying this to provide mutual protections.

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Dealing with Redlines

Since a contract is a mutual agreement, you may occasionally need to deal with requests for changes (called redlines). Most often, it's the company requiring changes, though experienced fractionals may do so as well.

The most robust way to handle redlines is with lawyers, though that gets expensive and time consuming quickly.

Most often, good faith redlines can be approved without lawyers, especially with extra sanity checks from your AI of choice.

If you think a redline is potentially problematic, having a conversation about the requester’s intentions often gets to the bottom of the issue and makes resolution easy. “What do you mean by this? I agree in theory, but this language opens up xyz issue. Can we solve this in a different way?” These are common conversations to have.

There’s unfortunately no easy instruction manual for evaluating redlines, it’s highly judgement-based.

Tip: In extreme cases, an inability to see eye-to-eye on standard, mutually respectful contract terms can be a sign of how the relationship will work after the docs are signed, too. Proceed accordingly.

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A Final, Practical Note on Contracts

Contracts are a necessity. Don’t even think about not having one. But they’re important for reasons you might not expect. The review and negotiation of the language serves to align expectations. And the signature marks the official starting point of the relationship.

That’s why they’re important. Not because you’ll win a court case with it (hopefully you never find yourself in that situation).

If you follow this Playbook, you’ll be left with a great IC agreement that is tailored for fractional work. The process of creating it, and getting alignment from both parties, is what will set your relationship up for success from the start.

‍If you want more fractional clients, as well as other best practices on building a successful fractional practice, check out Fractional Jobs.

And if you want to hire an exceptional fractional executive, or other fractional talent, we can help you do exactly that.