Independent Contractor Agreement

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Upd. 11, Jan, 2023
~ 3 pages
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An independent contractor agreement is a legally binding agreement between an independent contractor and another company or individual. Both parties should use an independent contractor agreement to fill out their tax forms accordingly. Fill out this legal document sample, download it, and sign it to make your life much easier without huge expenses.

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Template Description

Hiring an independent contractor gives you access to expertise that enhances your business’ competitiveness. With an independent worker, you supplement your workforce without the additional expenses of maintaining employees and the administrative burden of managing an expanded payroll. 

Yet, to ensure you enjoy a smooth working relationship with your worker, engaging based on a comprehensive independent contractor agreement is essential.  

What Is an Independent Contractor Agreement?

working female freelancer

An independent contractor agreement is a legally binding agreement between an individual and another company or individual. They often charge a higher rate due to contingency fees.

Independent contractors are also referred to as freelancers. Lease contractors are different from independent contractors. The latter ones can work as individuals or through general employment agencies or those that specialize in certain industries. The length of the contract can be anywhere from a few days to years. The freelancer pays the agency a fee to handle outreach and paperwork.

Insight

An independent contractor can even be a business owner who provides freelance services to the public, such as a lawyer consulting, nurse consulting, makeup artist, designer, spa massage therapist, mental health therapist, truck driver, personal trainer, dentist, veterinarian, real estate specialist, or other occupations. 

Parties of the Independent Contractor Agreement

  • Independent contractor –– A self-employed individual or business entity that provides a specialized service to another entity or individual. The contractor works according to the terms of an agreement and is not classified as an employee. The IRS has a page of what qualifies as an independent contractor.
  • Client or employer –– the party that commissions the services of a contractor and is responsible for providing the information necessary for them to do their job. The employer is also responsible for paying the worker according to the terms of the contract. 

Key Terms

A simple contractor agreement form outlines the responsibilities of both the worker and the employer toward fulfilling the work obligation. It ensures both parties are on the same page. Some general terms to include in the contract are:

  • Intellectual property (IP) –– A legal term used to describe tangible outputs resulting from creative efforts. Specify who will own the underlying rights to the work produced.
  • Compensation details –– Indicate the rates the client will pay for the service or product. Other compensation details include the billing date, retainer arrangements, payment schedule, or penalties for late payment. 
Insight

Independent contractors usually charge more than employees make if you don’t include benefits. However, where there is competition, the freelancer can lower their rates but not at the risk of losing too much income that can pay for their billing management.

  • Confidentiality –– A standard agreement should provide confidentiality guidelines, should the contractor have access to the client’s trade secrets or sensitive business information. The clause specifies that the contractor cannot share, download or trade the confidential information they come across throughout their work. This clause is also a separate document known as a nondisclosure agreement or NDA.
  • Performing services clause –– The contract should provide that the worker (and not a third party) is responsible for performing the services outlined in the contract and delivering the final output to the client. That is, there is no subcontracting.
  • Liability insurance –– Specify in the contract that the contract is responsible for taking up liability insurance or workers’ compensation according to industry standards or state law. 
  • Non-solicitation clause –– You may or may not have a non-compete clause barring the contractor from setting up a competing business for a set time. The clause can also include non-compete guidelines that bans the contractor from offering their services to your competitors for a set period.
  • The governing law –– The contract should specify the state law that governs the agreement. That law applies to the company’s location, or the state of the company’s headquarters in cases with multiple locations. 
  • Contract termination –– Outline the grounds for terminating the contract, including details such as the format or channels for communicating termination and the notice period before the termination becomes effective. The successful conclusion of a contract is not termination.
Insight

Examples of grounds for termination may include material breach of contract. For instance, if the contractor violates confidentiality guidelines, the business owner has the right to terminate the contract.

  • Waiver –– The clause provides that a waiver of breach, omission, or default should not constitute a waiver of a subsequent breach of any part of the contract.
  • Assignment –– Indicate that the contractor cannot assign obligations under the contract to a third party without the client’s prior written consent. 
Warning

Working with licensed attorneys is essential to ensure that your contract is comprehensive and protects your business interest. Alternatively, you can create a printable contractor agreement on Lawrina; just add your details and use it according to your need.

What Is the Difference Between an Independent Contractor and an Employee?

Independent contractors are self-employed and have to pay self-employment taxes. For instance, an LLC independent contractor is a person who does work for a limited liability company but is not officially an employee. 

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 as is mentioned for tax and legal purposes. Also, an independent contractor often signs a non-compete agreement that prohibits him or her from working with competitors, just like an employee.

Why Is an Independent Contractor Agreement Important?

A contract template is essential because it outlines the rights and responsibilities of an employer and the contractor. In addition to clarifying the terms of engagement, an independent contractor agreement also serves as an administrative tool that helps companies avoid misclassifying contract workers as employees or temporary workers. The agreement is vital for contractors and employers.

Importance for Employers

employer checking task

A legally binding agreement protects employers when they hire independent contractors. Employers can reduce overhead for the company by hiring individuals to do temporary, simple, 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 when 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

freelancer checking messages

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 format. 

For example, if you decide to work as a massage therapist in a salon, as an independent contractor, you are not supposed to come to work based on the salon schedule. This is strictly against the IRS guidelines. You can tell the employer your desired work schedule, which they can then add to their 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 Be Included In the Independent Contractor Agreement?

A valid contractor agreement template includes the following provisions: 

  • Details of the parties –– Descriptive details of the parties, such as the names and contact information.

  • Establishment of business relationship –– The agreement should establish a contractor and client relationship. It should also specify that the parties do not intend to establish a joint venture or a partnership through the contract. 

  • Description of the service the independent contractor will supply –– Carefully describe the work you, the employer, expect the contractor to deliver at the end of the contract period. For example, if a sales position, define the quotas the contractor must achieve to qualify for commissions. 

  • Compensation –– Mention the exact compensation the contractor will get after delivering the output. Indicate the payment schedule and the means of making the payments. 

  • Terms of the agreement –– How long will it take the contractor to finish the project? Provide the definite terms of the agreement, including start and finish dates. 

  • Contractor obligations –– Define the responsibilities of the contractor in the course of delivering the work required. For instance, mention any licenses the contractor may need, indicate that they are responsible for any employees they hire to fulfill their obligations, and any other reasonable expectations. 

  • Counterpart clause –– The counterpart clause provides that parties may sign the agreement in two or more counterparts (copies), and each shall be deemed as the same contract. 

How To Write an Independent Contractor Agreement

A contractor-worker agreement is a legally binding agreement that establishes a client-contractor/freelancer relationship. You can download a blank template from Lawrina and use it as is or hire an attorney or law firm to help you draft one from scratch. 

Insight

Independent contractors contract their services out to businesses and are considered self-employed rather than an employee of the contracting companies. Independent contractors are responsible for reporting and paying their income and Social Security taxes.

Here is how to write an agreement if you are a contractor or an employer.

For the Contractor

  1. Provide the details of the parties indicating the legal names and contact information;

  2. Indicate the payments terms as agreed with the client;

  3. Define the scope of work the client requests, including delivery date;

  4. Indicate your rates for the work described and provide a payment schedule. 

For the Client/Employer

  1. Provide the name of the work the freelancer will do;

  2. Indicate the state or federal law that will govern the contract;

  3. Establish that you own the intellectual property of the output;

  4. Describe the scope of work required from the contractor;

  5. Establish confidentiality guidelines that you want the contractor to follow;

  6. Determine how and who can terminate the contract;

  7. Think through your non-compete requirements within the context of your business interests;

  8. Write how you want you and your counterparty to resolve disputes.

Warning

Work with an attorney to provide legal advice and review the entire agreement to ensure you protect your interests if you are not the one who makes the agreement. Suppose you are the party that initiates the contract. In that case, obtain the prior consent of the counterparty on critical aspects of the agreement, such as the scope of work, compensation details, and contract terms.

When Do You Need the Independent Contractor Agreement?

Consider hiring an independent worker if you do not have the resources to hire a full-time employee. 

Common Use Cases

Hire an independent contractor when you: 

  • Need an expert to carry out work under minimum supervision;
  • Have a short-term project that needs to be completed within a specified period;
  • Seek to avoid the administrative aspect of managing employees, such as payroll and benefits;
  • Have work that requires a certain level of confidentiality;
  • Want to leverage the expertise of a contractor and gain a competitive edge over others in the industry.

When Not To Use the Independent Contractor Agreement

The IRS is keen on penalizing companies that misuse independent contractor agreement samples. Instances, when you should not use the contracts, are:

  • You are responsible for paying the contractor’s taxes such as FICA and benefits like disability insurance or any other employee benefit;
  • The contractor works under your close supervision and scrutiny;
  • Provide the contractor with the resources they need to fulfill their work obligations and determine how what, where, and when the freelancer does the work; 
  • The contractor is not allowed to work with other employees who require their expertise;
  • When you can’t determine how long it will take to complete the work required;
  • You reimburse the contractor for the expenses incurred while undertaking the assignment. 

State Law

State law determines the law that will govern the agreement. There are three factors to consider when determining the governing law of an independent contractor agreement. These are:

  • The state law that applies to the business’ location;
  • If the business is in multiple states, the state law is the one that applies to  the business’ headquarters; 
  • State law where the contractor will do the work. 

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Frequently Asked Questions

Can I write my own independent contractor agreement?

Yes. If you are a client, you can draft an independent contractor agreement, agree on the terms with the worker and have them sign it. As an independent contractor, you can also outline your terms of employment in a contract. In both cases, parties must agree to the terms of the contract and sign it for it to be legally binding.

What should we include in an independent contractor agreement?

An independent contractor agreement should have the following key terms: 

  • The business relationship, specifying that a contractor and not an employee will do the work; 
  • Scope of work that the contractor will undertake;
  • The applicable law that will govern the agreement;
  • Intellectual property owner of the output of the engagement; 
  • Confidentiality guidelines that the contractor should observe.
How do I make an independent contractor document?

Purchase our independent contractor agreement template. After you have the template, fill out the variable details, such as the description of the parties, the contract period, compensation, the nature and scope of work, the governing law, and sign it.