Thinking about hiring a freelancer or small company to do some work for you? Well, you may need an independent contractor agreement and you will want to know the key features to include.
Prior to preparing an independent contractor agreement, it is important to establish that the party is indeed an independent contractor and not an employee of your company. According to the IRS, an independent contractor is an individual to whom the payer “has the right to control or direct only the result of the work and not what will be done and how it will be done.” If the services that are being performed are being controlled by the payer as in what and how it will be done, then the person performing the services will be considered an employee of the company. Independent contractors are responsible for paying self-employment taxes.
Independent contractor agreements can be either written agreements or oral agreements. However, oral agreements are not recommended. The agreement should include the specific work that is to be performed by the independent contractor. Because an independent contractor is not an employee of the company, the terms of the relationship should be detailed in the agreement, including, that the independent contractor is responsible for their own taxes as detailed by the IRS.
Another important element of the contract is the time that is allotted for completion of the project. If for any reason it is not completed within the agreed upon time-frame how will this be handled? The agreement may also be for a specific amount of time such as one year. It may contain a clause stating that at the end of the year or term, it can be extended as needed. This is very important in independent contractor agreements. It could be costly if at the end of the contract you are unable to retain the contractor and have to find a new one to complete the project. This could slow down the entire project and wind up costing more money in the long run.
It is imperative to include the type of payment and the amount of payment that the independent contractor will receive. Will they be compensated a flat fee for the project or will they be paid an hourly rate? Will it be in the form of a direct deposit or a paper check? How often will they be paid? Will they be receiving compensation weekly, biweekly or monthly? If they are being compensated a flat rate how will the funds be distributed? This can be done through draws at certain times throughout the project or on certain dates that have been predetermined. However, it is important to decide upon this prior to the start of the project in order it avoid confusion later.
As with any contract, it is important to protect the rights of both parties. An independent contractor agreement may include a conflict of interest statement along with a confidentiality statement. It should also include that if for any reason the contractor is not complying with the terms of the agreement it may be amended or terminated prior to completion. In addition, it is very important to note that simply having an independent contractor agreement in place does not mean that a court will always determine your workers will be deemed independent contractors. Even with an agreement in place, if the manner and means in which the work is completed in controlled by the employer, then the court is likely to determine that the individual is an employee and not an independent contractor.
An independent contractor agreement is a legal document. It is strongly recommended that prior to hiring an independent contractor you seek the advice of a qualified business attorney who will be able to advise you and assist you with all of the details that are essential to your agreement.
DISCLAIMER: The information contained herein is not intended to be specific legal advice for your particular situation. It is meant to provide general information on the changing landscape of the law. You are encouraged to contact legal counsel for legal advice specific to your particular legal situation.