Why You Need a Independent Contractor Agreement

Small Business - September 4, 2017
Man leading a an office business meeting

Whether you are an independent contractor or intend to utilize one, you should have a written agreement to clearly define the roles and responsibilities of your professional relationship. An independent contractor agreement may help clear up confusion over worker classification, payments, deadlines, taxes, dispute resolution and more.

A well-written agreement may also help you avoid disputes, protect you from liability and keep you out of court. Your LegalShield provider law firm can help you review the terms of an agreement before you sign.

  • Worker classification – For employers, incorrectly classifying an employee may have significant tax implications for your business. Just because you define a worker as an independent contractor in your agreement does not mean the IRS will agree with your classification. Once you are confident that the worker is an independent contractor, clearly define them as such in your agreement. If you are an independent contractor you should also understand these guidelines. If you are in fact treated as an employee, you may be entitled to benefits and your tax liability may change. If you have questions call your LegalShield provider law firm.
  • Responsibilities – Use the agreement to lay out the exact nature of the work to be completed. Define materials to be used, expenses, workspace, development, delivery and any other details of the work. Set out the lines of communication. Who will be the primary point person for both parties? What is the preferred method of communication? How often will you meet to review progress or finished work? Setting clear parameters will help avoid frustration and miscommunication.
  • Deadlines – Delays and missed deadlines are frequent points of contention. Clearly define important due dates and production deadlines, as well as the consequences for failing to meet them. Independent contractors should make sure they can realistically meet these deadlines prior to signing, particularly if there are financial ramifications for failing to complete work on time.
  • Payment – Spell out the exact cost for work to be completed and how it will be invoiced and paid. If any additional work is required that falls outside the scope of the agreement, how will it be billed? Will you require written authorization before additional work is completed or set a standard hourly rate to cover overages?
  • Taxes and benefits – Your agreement should make it clear that the independent contractor is responsible for paying their own state and federal income tax. In addition, the agreement should state that the contractor is not eligible to receive any employee benefits.
  • Liability & licensing – Confirm in the written agreement that the independent contractor has liability insurance and is fully licensed by the state and any other relevant regulatory agencies.
  • Intellectual property & competition – You must specify who owns the intellectual property created by the independent contractor under the agreement. You should also include a nondisclosure agreement, which prevents the other party from sharing information with competitors. If an independent contractor has access to customer payment data or any other sensitive personal information, you may also have them sign a confidentiality agreement. Talk with your attorney to determine the best means to protect your intellectual property and customer data.
  • Dispute resolution – You may choose to include a clause requiring disputes to be settled via mediation. This may help you avoid some legal fees in the event there is a dispute but may not always be in your best interest. Talk with your lawyer about the options available to meet your needs.
  • Termination – Set the duration of your agreement. Will the agreement terminate after a year or once work is complete? Who can terminate the agreement prematurely and under what circumstances?