What to Include in an Independent Contractor Agreement
Independent Contractors v. Employees
Many businesses prefer to use independent contractors or freelancers rather than hire employees, especially if the business does not need help year-round or does not have enough work to keep regular employees busy. Since independent contractors do not receive employment benefits and usually do not require office space, hiring an independent contractor can be an effective way to keep costs down. There are pitfalls to hiring and/or improperly classifying independent contractors, however.
Generally, independent contractors and employees differ based on how much control the business exerts over the individual and the work he/she performs for the business. If the business dictates when, where, and how the work is to be performed, the courts are more likely to classify that individual as an employee, rather than an independent contractor—meaning that the company may be required to pay employment benefits and other employee-related costs for the person. Other factors the courts review include who provides materials and supplies for the individual to perform their work and whether the work is temporary or permanent.
Independent Contractor Agreement
If a business hires independent contractors to perform work, it’s a good idea to put the terms of the agreement in writing to avoid any misunderstandings in the future, even if a written agreement is not legally required. If a dispute arises later, it will be easier to establish what the terms of the agreement were if they are in writing. A written agreement also ensures that both parties are on the same page with regard to the work and that neither is working under false assumptions.
At a minimum, the agreement should include terms regarding: 1) the work the independent contractor has agreed to perform for the business; 2) the deadline for performing the work, if any; 3) the amount the company has agreed to pay for the work; and 4) when payment for the work must be made. It should also include a statement outlining who is responsible for paying expenses and who will provide materials, equipment, and office space for the work. Some businesses may also want to include the term of the agreement, where appropriate; for example, one week, one season, or until the project is completed – including an explanation as to what constitutes completion.
The independent contractor agreement is also important because reinforces that the person is an independent contractor, not an employee. Included within the agreement should be certain statements, which solidify the intentions of the business/independent contractor relationship. Several examples are: 1) “the independent contractor will pay state and federal income tax”; 2) “no taxes will be withheld from the independent contractor’s payments by the company;” 3) the independent contractor is not entitled to benefits provided to employees of the company, including health insurance, pension, vacation or sick pay;” the company is not providing any insurance on behalf of the independent contractor;” and “the independent contractor is not covered by the company’s liability insurance policy.”
Other elements the independent contractor agreement should cover include:
- A statement that the independent contractor has all of the permits and licenses that the state requires to do the work and that he or she carries liability insurance;
- A “work for hire” clause, indicating that any work produced by the independent contractor for the company is owned by the company, not the independent contractor;
- A non-disclosure clause that indicates that the independent contractor shall not disclose the company’s proprietary information to others. Independent contractors can have access to all sorts of proprietary information, including product information, financials, and/or customer data, which the company would not want to be shared with others;
- A termination clause, which includes a description of the circumstances under which the company or the independent contractor can terminate the agreement, and how much notice must be given by either side to terminate the contract; and
- An explanation of how the company and the independent contractor will resolve any disputes that might arise, such as an arbitration clause requiring disputes to be resolved in arbitration or mediation, rather than in court, or a choice of venue clause, designating a particular court or jurisdiction as the place where any lawsuit between the independent contractor and the company must be brought.
If you are considering hiring an independent contractor and need help with drafting an agreement, post your legal need on Legal Services Link and let the perfect employment lawyer come to you!
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