The gig economy has transformed the way Americans do business. Today, it’s not unusual for people to work as independent contractors with several different companies, where separate independent contractor agreements may be drafted.
Independent contractors are not employees. They provide services to businesses or individuals on a limited contractual basis, which means the employer or client does not need to pay for health benefits and workers’ compensation, or withhold taxes on the contractor’s behalf. In return, the business or client has much less control over the independent contractor than they would if they were an employee.
The key to a successful independent contractor relationship is to draft an enforceable independent contractor agreement. Here’s an overview of what your agreement should include, and why you need one.
What is an Independent Contractor Agreement?
Independent contractor agreements set the terms and conditions for a contractor’s work. They protect both the worker and the company. For example, they prevent employee misclassification and set the terms for the type of project, payment and deadlines. Each party knows what to expect for timing, budget and deliverables at the outset.
Like most contracts, independent contractor agreements are negotiable. As long as both parties agree and the terms are within the bounds of the law, the agreement is enforceable.
Independent contractors are considered self-employed. They can agree to whatever type of payment, time and duty terms they like—one independent contractor might work 30 hours per week for one company, and 10 hours per month for another. Independent contractors often have multiple contracts in play at any given time.
What Should the Agreement Include?
The agreement should include details about the project they’ve been hired to work on, including:
- Project description
- Project scope
- Payment rates
- Payment schedule
- Worker classification (e.g., independent contractor vs. W-2 employee)
- Which benefits are not included (e.g., insurance, workers’ compensation, Social Security, paid time off, sick leave)
- Which duties are not included in the project (e.g., regular employee training, meetings, reviews)
- Whether the contractor may hire subcontractors
- Expense, travel and reimbursement policies (where applicable)
- Confidentiality terms
- Intellectual property considerations
- Non-compete clauses (where applicable)
- When and how the agreement may terminate
- Governing law and preferred dispute resolution method
For instance, if you hired a freelance editor to edit your great American novel, your agreement would cover which book is to be edited, its length and the type of editing you need. You might agree to a six-month deadline with half the payment up front, and half due upon final delivery. These details help differentiate independent contractor duties from that of a W-2 employee.
What Should an Independent Contractor Agreement Include?
Independent contractor agreements protect both company and contractor. For example, if a company fails to pay the contractor on time, the contract allows them to pursue compensation in court. Similarly, the same agreement can protect the company if the employee claims they’re a W-2 employee.
It’s important to remember that an independent contractor agreement is not a silver bullet against all worker/company conflicts. The agreement needs to include the terms of the agreement mentioned above—and they need to conform to state law.
Disputes can arise even when you have an independent contractor agreement. For instance, some companies hire independent contractors to avoid paying benefits and withholding taxes. However, if the company treats the contractor like a full-time employee (trying to control where and how the employee works, requiring them to attend training and meetings for full-time workers and more), a court may hold that the contractor was in fact an employee. That can happen even when the contract describes a different arrangement.
In short, it’s crucial that you have an independent contractor agreement. More importantly, it needs to be tailored to state law and describe independent contractor duties.
How Do I Create an Agreement?
There are free independent contractor agreement templates online. However, they are generic and may not be enforceable in each state and country. When you’re hiring outside of your own state or country, avoid free resources—they simply can’t provide the depth and breadth of legal coverage you need. The more complex or confidential your business, the more you need a customized independent contractor agreement.
If you don’t want to incur the time and expense associated with hiring lawyers, SixFifty provides robust solutions. Our proprietary technology uses real legal expertise to deliver customizable, legally enforceable independent contractor agreements for all 50 states. All your lawyer or in-house counsel needs to do is review and approve. It’s the easiest way to ensure you and your contractors are covered.
If you’re ready to get started or have further questions, schedule a demo with SixFifty today.