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:

1. The basics

List out all the basic details such as the date when the agreement goes into effect and the parties involved in the independent contractor agreement.

2. 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.

3. Contractor services

This section 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
  • The compensation rate
  • How and when the contractor will be paid (for instance, will the 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
  • The deadlines
  • Any other important info about the services they will be performing

4. Independent contractor status

In this section, you need to make it clear as day that your contractor is an independent contractor and not an employee or partner of your company. Not sure about the difference between the two? Here’s a recap.

You can also specify that you will not be withholding any federal, state, or local taxes from the contractor’s pay and that the contractor is responsible for all tax liabilities. Note: the exception is if the contractor is subject to backup withholding.

You can also 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.

5. Ownership

This part is important because it’s where you say that everything your contractor creates is owned by your company. This is where your contractor agrees to give up all rights to the work they create while working under the scope of this independent contractor agreement.

This section is also where you can give your contractor to display their work in their portfolio, if you wish.

 

Want more details? Check out this detailed guide to creating an independent contractor agreement.

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.