What Is an Independent Contractor Agreement

An independent contractor agreement is a contract that documents the terms of a client’s arrangement with a contractor. This is also referred to as a freelance contract, a general contractor agreement, a subcontractor agreement, and a consulting services agreement, among other alternative names. One can expect this kind of contract to include varied details such as what services are being provided for by the contractor, how long the project or service is going to take, the payment details involved, and other clauses pertaining to confidentiality, dispute resolution, and non-solicitation.

By 2017, independent contractors made up around 6.9% of the United States workforce according to the Bureau of Labor Statistics. It remained the largest out of the four alternative arrangements, with on-call workers as the second largest at 1.7 %. Following that was temporary help agency workers, who accounted for approximately 0.9 % and contract firm workers at 0.6%. In 2018, a similar statistic was reported by the National Public Radio that one in ten workers is an independent contractor. Due to the prevalence of independent contractors in the workforce today, it helps to have a solid understanding of what an independent contractor agreement is all about.

30+ Sample Independent Contractor Agreement Format, Template in PDF, Word

The Elements of an Independent Contractor Agreement

Every independent contractor agreement you encounter will possess the same key elements. If you are to involve yourself with independent contractors and the related legal documents, then you will have to familiarize yourself with the following:

Statement of Relationship: The first key element that you need to ensure is included would be the statement of relationship. After all, this where the roles of both the contractor and the client are specified and defined. As overlooked as this may be compared to the other parts of the independent contractor agreement, this also happens to be one of its most important details.Project Description: The next element for you to include is the project description, which is as simple as it gets. This is where the client’s project is described in great detail, ranging not only from its long-term activities, but also to the specifics that each party needs to adhere to. It is also in this key element that backup plans are formulated and stated in the event that the original plans backfire.Payment and Billing Terms: One of the most common points of contention for any contract would have to be price. Help avoid that kind of trouble by specifying the rate of the independent contractor, the payment schedules, and other terms that the two of you have agreed to.Responsibilities of the Parties: This element is particularly useful for projects that involve more than two parties. It can get complicated for sure and it must not be assumed that everything is automatically understood. For that reason, it is best to have all of the respective parties’ responsibilities in writing. This can also help establish a process where the project’s progress can be reviewed and communicated between the numerous parties.Project Timeline: This is where you write the overall length of your working relationship with the contractor. Those who cannot be sure of the exact timeline can simply list an estimate or an approximate timeline. You can also discuss what counts as a milestone for the project, which can help determine what the overall progress is.Termination Conditions: These would be the specific rights of both parties, outlined to illustrate what needs to happen in order for either one to be able to rightfully cancel the contract. Having this in your independent contractor agreement is useful for worst case scenarios that may involve breach of contracts or even the event of nonpayment.Nondisclosure and Confidentiality Terms: These are set in place to make sure that departing employees do not take company secrets with them to their competitors. For independent contractors, these are especially useful considering the fact that the nature of their work involves jumping from one client to the next. A non-compete agreement can also be included, which will further prevent the contractor from working for clients specifically outed as competitors of the present client.

How to draft an Independent Contractor Agreement

Right after learning the elements, the logical next step for you would involve the drafting of an independent contractor agreement. To ensure that the creation process is made easier and faster, a general step-by-step procedure has been provided below for your benefit.

Step 1: Begin by Writing Down Important Details of the Agreement

To start things off, you need to specify when this freelance contract was made and between whom. List down the names of both the client and the contractor, along with their respective addresses. All of these details are contained within the first paragraph of the agreement.

Step 2: Indicate the Services, Compensation, and Expenses

These three parts must be tackled before anything else after the initial details. For services, describe the details of the project briefly along with what is expected from the independent contractor. Follow that up with the compensation, which is where you specify the amount of money that is owed to the contractor. For expenses, state that any costs and expenses incurred by the contractor will be his or her responsibility.

Step 3: Focus on the Essentials

For the term and termination, this is where you specify when the project or the working relationship between the client and contractor starts and ends. Following that, it will detail the terms and conditions that will lead towards the agreement’s termination and what that entails. Next, you are to specify that the contractor hired is independent and is not in any shape or form an employee of the client. Lastly, declare under the ownership of work product that anything that is developed through this project is owned strictly by the client and not the contractor.

Step 4: Include Other Important Provisions

From there, you will need to dedicate more of your agreement to various provisions that are intended to add the finishing touches to the document. Among these would be matters pertaining to insurance, non-compete clauses, mediation, binding effects, further assurances, and waivers. It is advisable to consult an attorney for the specifics of any of these provisions. These are what makes up most of the agreement and it may take some time to fully sort everything out.

Step 5: Leave Some Space for Both the Client and Contractor to Sign

After all is said and done, what’s left for you to do is provide a specific space for the client and the contractor to affix their signatures. This will not only include their signatures but also their complete legal names written in print. Once this has been taken care of, it is advisable to look back on everything else to see if there are no mistakes or typos in the overall document.

The Dos and Don’ts of Independent Contractors

Drafting an independent contractor agreement takes you one step closer to your actual collaboration with this type of professional, but are there other things to keep in mind? The answer to that is yes. Working with independent contractors can get tricky so read on and it pays to learn all about the following dos and don’ts.

Dos

Do ensure proper documentation is set in place.

The first ‘do’ that will be tackled relates entirely to the creation and utilization of an independent contractor agreement. Take what you’ve learned regarding its important elements and creation process because it is vital to have an independent contractor sign that document in order for things to go as smooth as possible. Be sure that you remember to clarify all of the terms involved, as well as specify whether or not the contractor is running his or her own business.

Do look for the best person for the job.

Even before you get your chosen independent contractor to sign your agreement, it is important for you to get someone who is qualified for the job. Among all those who have proven to be qualified, select the professional whose skillset, experience, and character make him or her best suited for your needs. Save yourself from potential grief and do your research. Think of all the tactics and strategies laid out in your business plans that are going to be made useless if you hire the wrong person.

Do look into some of their previous work.

This tip continues the trend of making sure the person you are eyeing is fit enough for the job you have in mind. Remember that you can tell a lot about a certain professional by their previous works. If possible, you need to be able to review it before choosing an independent contractor. Find out through their works whether they’ve got the right skill for your specific needs or not and whether what they can come up with is something that you will be pleased with. This applies even if they come highly recommended by a contact, complete with a job recommendation letter and everything.

Do conduct an interview with your prospective independent contractors.

After finding a contractor that seems to meet your standards, confirm everything through an interview. In meeting with someone face to face, you can get a personal feel of what they are like as a person. You can determine what the job means to them, whether they share your values or not, and how fit they really are for the job. Trust your gut and analyze the prospect carefully.

Do request a quote.

Before having any kind of work done, you must first request a quote from your chosen independent contractor. This will not only include how much their services are going to cost you, but also how long they think this project is going to take them to complete. From there you can evaluate for yourself just how reasonable everything is and whether or not you will need to continue shopping around for alternative prospects.

Do get insurance.

Concerning insurance, the kind you are looking for would be a general liability insurance. This is necessary when dealing with independent contractors due to the fact that it provides coverage for a wide variety of instances. A few examples would have to be customer injuries, any property damage that has been sustained for whatever reason, any lawsuits directed to or instigated by either the client or the contractor. This is among the first policies that must be placed in any agreement, so it should not be easy to neglect. However, one can never be too sure and it is never a bad idea to place further emphasis on this.

Don’ts

Do not choose a contractor who demands full payment upfront.

Concerning most independent contractors, it is typical for them to be paid on a periodic manner as discussed beforehand. There are even some that agree to only be paid once the project is finished. When you come across someone who demands full payment upfront, then you need to be wary. Even when this is a person with a proven track record of being dependable, this is still considered an unusual practice and it would be a lot better to adhere to a payment schedule that the both of you can be happy with.

Do not choose a contractor purely out of nepotism.

Let’s say that you may know someone who remotely fits the description of what you want out of an independent contractor. Now let’s say that this person is a distant cousin or even someone within your immediate family. Before you decide to instantly hire that person right then and there, you need to check on how qualified they really are first. Nepotism, in this case, is not an inherently bad thing as long as the contractor is still capable. If he or she isn’t, then that is when you need to continue your search for someone competent. After all, your project comes first over any familial ties.

Do not rely on oral agreements.

For the benefit of both you and the independent contractor, have everything in writing. Use your newly acquired knowledge of independent contractor agreements to draft a document that will detail every agreed-upon term and condition between the two of you. Oral agreements, while convenient, will not guarantee anything. Should the worst happen and the two of you get into disputes over specific parts of your deal, then you will need proper documentation to help resolve it.

Do not stay passive on things that you are not comfortable with.

As the client, it is your project and your voice must be heard. Do not allow the independent contractor to dictate to you how things will go, especially if what is suggested goes against your values or plans. If something happens during the duration of the project that you cannot condone, then speak up. Staying passive implies acceptance and it will set the tone for the rest of your working relationship.

Do not rush the project.

As much as you may want everything to happen when you want it to happen, there are times when you simply cannot rush things. If you want the project done right, patience and trust in your chosen independent contract are both needed. There may be delays in the proceedings, but you can work things out if you and your contractor stay in constant communication with one another. See what has gone wrong and try to figure out if there is anything you can do. In the event that you cannot do anything, then the best thing to do is to just wait it out.

Do not classify them as employees, even temporarily.

Having the right classification is a must, not because it is something decided by the two parties involved and their agreement, but because it is something defined by law. Not only are there legal consequences to misidentifying independent contractors as employees, but tax consequences as well. Clients and employees can face fines and penalty fees, in addition to back payroll taxes worth years if they misclassify their workers. It is for these reasons why one must always state the independent contractor chosen as an independent contractor when drafting the agreement.

As you can imagine, there are a lot of things that need to be considered and sorted out when it comes to the dealings with independent contractors and the related documents. Even with the elements and steps provided, there will be those who will still want a quicker way to get the agreement. For those people, online resources like an independent contractor agreement template are readily available as long as you know where to look. Just edit particular parts of it with your own information before printing it out.