Many employers are using independent contractors to save costs and to help fill the gap in staffing.
Many of these freelance workers are hired to fill a need or to complete a project or job.
Because these workers are not technically employees, who receive the same benefits, there needs to be a written agreement between the two parties to ensure an understanding as to the requirements and expectations of both parties.
The IRS defines what an independent contractor is and has specific rules that specify whether someone is an employee or an independent contractor. The biggest difference is in how the worker is taxed.
Business owners need to make sure their interests are protected by having a written agreement with the independent contractor.
Contracts are enforceable when it is a mutual agreement between two parties with clear details of what is agreed upon.
The agreement is typically initiated by one party and accepted and signed by the other.
It is important for the wording in the contract or agreement to be clear so there is no confusion.
The more detail, the less confusion there will be if one party challenges the agreement.
10 Points to Cover in an Independent Contractor Agreement
1. Services Provided
The agreement should clearly state what services the contractor will be providing by listing all services they will be performing.
Specifically, what services will be provided for the compensation that will be received.
2. Terms of Agreement
This includes when the agreement is effective, how long the agreement will last, and a date when the agreement ends.
Payment for services should be determined by stating the frequency for payment – weekly, bi-weekly, or monthly. This includes the agreed to an hourly or fixed rate of payment to compensate the contractor for their services.
Specifically, what is the agreed compensation for the services and when is the compensation due for payment.
4. Termination of Agreement
A termination clause should be included in the agreement stating the number of days required for giving notice of termination of the agreement.
There should be a section that clarifies what each party needs to do to terminate the agreement, the amount of time required to give notice, and how that notice is to be delivered to the other party.
5. Relationship Between the Parties
This section stipulates the relationship between the contractor and the organization and clarifies that the contractor is not an employee and is not eligible for benefits, such as health insurance, paid vacation, or any other benefit that employees receive.
6. Work Ownership
Both parties should agree to ownership of any copyright works that are produced by a contractor.
If the contractor does work of a creative nature, it should be specified who owns the copyright of the work. Typically the person paying for the work owns the copyright but this should be specified in the agreement.
The agreement should include expectations for the contractor to not disclose proprietary or confidential information to any third party during and after the agreement period.
8. Applicable Law
The agreement should identify the state in which laws will govern the agreement. The agreement should be upheld in the court of the state that the contractor resides.
9. Worker’s Compensation/Liability Insurance
The contractor should be required to provide worker’s compensation insurance for any workers that fall under the agreement and the hiring organization should not be held responsible for any claims that result from injuries to the contractor’s employees.
All equipment, tools, and supplies needed to perform the work should be provided by the contractor.
The agreement should describe the minimum amount of insurance the contractor will carry to cover any negligent acts on the part of the contractor or the contractor’s employees.
The agreement should be signed by both parties, specifically by the person with the authority to sign on behalf of the organization.
Finally, one of the advantages of outsourcing work is reducing cost and risk to the organization.
These factors should always be considered when hiring contract workers and negotiating the agreement should be part of the process.
As with all legal documents, having an attorney review and modify before finalizing or signing is advisable.
An Example Independent Contractor Agreement is available for you to modify for your organization and review with your attorney.
Thriving Small Business makes no claims as to the legal viability of this document, it is merely for example purposes only.