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Template Description
If you are planning to hire an independent contractor, no matter how small the job is, you should always have a contractor agreement that lays out the terms of the project for both parties.
What is an Independent Contractor?
An independent contractor agreement is a legally binding agreement between an independent contractor and another company or individual. Independent contractors are also referred to as freelancers. They are any cells employed by individuals who provide temporary services. An independent contractor can even be a business owner who provides freelance services to the public, such as a lawyer or veterinarian.
What Is an Independent Contractor Agreement?
An independent contractor agreement is a legally binding agreement between an independent contractor and another company or individual. Independent contractors are also referred to as freelancers. They are any cells employed by individuals who provide temporary services. An independent contractor can even be a business owner who provides freelance services to the public, such as a lawyer or veterinarian.
What Is the Difference Between an Independent Contractor and an Employee?
Independent contractors are self-employed and have to pay self-employment taxes. They also have to file different tax forms annually. A big part of an independent contractor agreement is distinguishing the independent contractor you hire from other employees who work for your business full-time. You have to do this for text and legal purposes.
Why Is an Independent Contractor Agreement Important?
An independent contractor agreement is important because it's legally binding. This protects employers and freelancers. It's also something that both parties need when they fill out taxes the following year.
Importance for Employers
Employers are protected by using a legally binding agreement when they hire independent contractors. Employers can reduce overhead for the company by hiring individuals to do temporary or individual tasks instead of hiring full-time employees to do the same. Working with independent contractors provides more flexibility for non-essential tasks and a voice committing to a salary where one isn't necessary. It is easier to terminate contracts when you have a legally binding independent contractor agreement, and it costs less to hire and file taxes on behalf of the individuals.
Importance for Contractors
Independent contractors don't reap the same benefits as employees when they use an independent contractor agreement, but it nevertheless provides legal protection. As someone who is self-employed, you have a lower tax liability and you have greater control over your schedule. If a company tries to abuse your services by asking for things beyond the terms of the services in the agreement, you have the legal recourse to remind them that what they are asking for is outside the scope of the agreement, but you're happy to renegotiate for higher compensation in exchange for more work.
What Should Include in the Independent Contractor Agreement?
There are many things you should include in your independent contractor agreement. It is always easier to consider reviewing a contractor contract template, and from there, picking the items that apply to your situation. However, in general, you want to include the following:
Parties involved and services
Include a list of who is performing services. As part of the agreement, contract workers may or may not be given perks such disability insurance, health insurance, or other employee benefits. This is something you need to discuss ahead of time.
How to handle information
A significant portion of your agreement should discuss what trade secrets or confidential information might be exchanged as part of the contract, and what security measures need to be employed by the contractors to protect that information. Someone working for a health insurance company on an independent contract agreement might need to use a contractor agreement template that specifies what level of electronic security needs to be used to protect personal identifying information.
Breach of contract
Similarly, there needs to be a section stating what happens if there is a material breach or subsequent breach. This should include what measures a business owner and independent contractor have to take, and who will be legally responsible in this joint venture.
Legal review
You also want to include a section where the business owner and contractor are given a chance to provide prior written consent from an attorney.
You should both sign on the same page.
How to Write Independent Contractor Agreement
If you want to write your agreement on your own, make sure you have the appropriate sections and you follow the right steps.
Coordinate with the counterpart
Start by coordinating everything before you sit down to draft any type of agreement. You should enter into negotiations with the other party and work out the fine print of what services will be performed, what the compensation will be, how legal disputes will be handled, and what the termination process looks like.
Negotiate essential terms of the contract
Negotiating the essential terms of the contract could take anywhere from a few days to a few months depending on how complicated your contract is.
- For example, companies can hire independent contractors to run through a list of previously published articles and make SEO changes. This might be something that is contractually designated for however long it takes to complete, with hourly compensation, at no more than 10 hours per week.
- Conversely, a company might hire an independent contractor to provide 30 hours per week of work without having to find an office for them or cover the cost of things like health insurance and employee taxes. The latter will likely take longer to negotiate.
Fill in & Download contract template
Use Lawrina Rocket Builder to generate your ready to go Independent Contractor Afreement. Just fill in all the necessary information (make sure both parties review before everyone signs). Download a template and send the document for signatures either electronically or in person. It will make your life much easier to start with a template and make changes to it as you go along.
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Frequently Asked Questions
In addition to having the standard independent contractor agreement for work performed, self-employed specialists will need to report their income using the IRS 1040 Form. This form is used to determine how much tax is to be paid on net earnings from self-employment.
An independent contractor should also keep copies of the W-9 Form and the 1099-NEC (Nonemployee Compensation) Form, both of which are provided by the hiring client (these forms are discussed in more detail below). A contractor should also retain copies of all invoices and project documents in the event the IRS needs more details about a particular job.
A 1099 contract agreement, or an independent contractor agreement, outlines the terms and scope of work that an independent contractor will perform for the hiring company in exchange for payment. Any payment issued to an independent contractor under a 1099 contract agreement will need to be reported to the IRS by the hiring business using the 1099-NEC Form.
Note that a W-9 Form is provided by the hiring company to the independent contractor to fill out before the contractor begins work. This form is necessary for the hiring company to obtain identifiable information of the independent contractor (such as the taxpayer identification number) in order to properly report income paid to him or her.
If a business owner hires an individual to perform services as an independent contractor rather than an employee, the parties will need to have an independent contractor agreement in place. As mentioned above, this legal document outlines the scope of work to be done by the independent contractor along with other essential details related to the services. The independent contractor agreement helps the hiring business owners or individuals set clear expectations from the independent contractors regarding the scope of work.
Clients can benefit from hiring self-employed contractors in the following ways:
- Minimized costs on legal matters and time;
- Reduced responsibilities from the client’s side;
- Great help with tasks for employed team members;
- Flexibility and productivity that a contractor brings to the job and team;
- An outside perspective that can be helpful for the client’s business;
- An option to end your client-contractor relationship quickly without stress.