Business Practices

What is an independent contractor agreement?

Simply put, an independent contractor agreement is a formal written agreement between your company and your contractor outlining key details about their work.

Here’s what should be included in your agreement:

Part One: The Basics

The effective date of the agreement and the names of the parties entering into it. It will look a little something like this

This independent contractor agreement is made and entered into as of [DATE OF AGREEMENT] between [YOUR COMPANY NAME], and [THE NAME OF YOUR CONTRACTOR].

Part Two: Term and Termination

Also lay out how long the agreement is for (it can be until the work is completed), and how the agreement can be terminated, if needed.

Part Three: Contractor Services

This is especially important because it’s where you lay out as clearly as possible the scope of work that your contractor is supposed to accomplish. This includes:

  • How you’ll review their work
  • How you’ll handle quality issues
  • Compensation rate for the work to be performed
  • How and when the contractor will be paid (for instance, will contractor be paid throughout the project, or only once all work is complete)
  • How expenses will be handled
  • Who is responsible for providing any needed materials
  • Deadlines to be met
  • Any other important info about the services they will be performing

Part Four: Independent Contractor Status

Section three is where you make it as clear as possible that the contractor is in fact an independent contractor and not an employee or partner in your company. This is important if you ever end up in court with a contractor trying to claim any benefits as if they were an employee (such as sick pay or unemployment insurance benefits). Unclear about the difference between the two? Read more here.

You can also include here that you will not be withholding any federal, state or local taxes from the contractor’s income and that the contractor is responsible for all tax liabilities. Note:  exception if the contractor is subject to back-up withholding (link to How to Pay a 1099 Independent Contractor article). .

You can mention that you will be reporting their income to the Internal Revenue Service on a Form 1099-MISC, and that they will be provided a copy.

Part Five: Ownership

This part is important because it’s where you say that any and all work your contractor creates is owned by your company, and therefore, they give up all rights to it. This is also where you can, if you desire, grant permission to the contractor to display the work in their portfolio for the purposes of marketing their services to others.

Other Sections to Consider:

  • Representations: This means that both parties are authorized and empowered to enter into the agreement and that doing so doesn’t infringe on anyone’s rights.
  • Indemnification: The company will not be held liable for anything bad that happens when the contractor is performing the work.
  • Travel: How much is involved? Who pays for it? What’s the reimbursement process like?
  • Confidentiality: If it’s important to you, this is where you spell out that the contractor is not to share anything related to the work with anyone for any reason.
  • Miscellaneous provisions: In this area, you can mention if the agreement supersedes any previous agreements, how it can be amended if needed, how it’s governed by the laws of which state, what happens if the contractor needs any licenses or permits for the work, if they should have their own liability insurance, and so on.

This article provides general information and shouldn’t be construed as tax, benefits, legal, or HR advice. Rules and regulations may change over time and may vary by location. So, please consult an appropriately certified expert (such as a lawyer, CPA, tax advisor, licensed broker, or HR expert) for advice specific to your circumstances.