The secret to keeping everyone happy and agreeable? Agreements.
Once you know whether the person you just hired is an employee or contractor, you can begin to create the documents needed to bring them on board. In this article, we’ll explain the why and how of independent contractor agreements so you can go ahead and draft one of your very own.
Why an agreement is so important
So you just brought on an independent contractor. When you shook hands on your verbal agreement, you probably assumed the two of you were on the same page. But how can you be on the same page when there was no literal page to begin with?
You may think you can just talk through what’s needed, come to a mutual agreement about the terms, and go from there. It’s quick, easy, and painless — that is, until you get a little further down the road and realize your contractor hasn’t done what you thought they would. (Facepalm.) And sometimes those misalignments can result in incomplete projects, wasted payments, or just general annoyance. (Double facepalm.) There are lots of legal considerations, which is why a written agreement is so essential.
Simply put, don’t skimp on a contractor contract. If you want to be on the same page as the independent contractor you’re hiring, there’s simply no substitute for having a formal written agreement.
Here’s what needs to be in it:
Begin with the details
Start off with the effective date of the agreement and then name 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].
Section one: Term and termination
So far so good, right? Next, you want to delineate the term, or how long the agreement is for (it can be until the work is completed), and how the agreement can be terminated, if needed. Call this section 1.0, “Term and Termination.” Subsection 1.1 would cover the “Term” of the contract and subsection 1.2 would cover how it can be terminated, like a written notice from one party that the other is violating the agreement. Feel free to comb through these SHRM and Rocketlawyer templates and you’ll be able to find the wording that works for you.
Section two: Contractor services
Pro tip: don’t skim this section. All sections of the agreement are important, but section two is the most critical because it’s where you lay out as clearly as possible the scope of work that your contractor is supposed to accomplish. Your goal? To eliminate any areas of ambiguity. Be as specific as possible so both parties understand the expectations for the end result of the work, including how you’ll review it and how you’ll handle quality issues. This is also where you lay out the compensation rate for the work to be performed, how and when the contractor will be paid, how expenses will be handled, that you will provide access to necessary materials but ultimately the contractor is responsible for providing any needed tools or equipment, deadlines to be met, and so on. Also make it explicit that your company is not responsible for any local, state, or federal taxes, which should be the responsibility of your contractor.
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Section three: Relationship of the parties
Section three is where you make it as clear as possible that the contractor is in fact an independent contractor and not an employee. This is where you should make it clear that the company does not control or direct the manner or means by which the contractor performs the services. Be sure to explain that since the contractor is not an employee, they have no authority to make any agreements or representations on behalf of the company. Defining the relationship of the parties is important for many reasons, including, if you ever end up in court with a contractor trying to claim any benefits as if they were an employee. Unclear about the difference between the two? Read more here.
Section four: Ownership
This part is also 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, including any intellectual property rights. This is also where you can grant permission to the contractor to display the work in their portfolio for the purposes of marketing their services to others.
Other sections to think about
From here, you might include any number of additional sections with all kinds of little legal stipulations. Items typically included are:
- 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: This is where you spell out that the contractor is not to share anything related to the work they are doing, or any of your company’s proprietary information they may learn 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, who and where notices related to the agreement should be delivered to, and so on.
Now that you’ve got all the crucial ingredients, you can simply wrap it up with places for both parties to sign and date the agreement.
You should now feel like you have a solid grasp of how to spin up an agreement that shines. Because the document you create will enable your contractor to do fabulous work, feel protected, and rest assured knowing that the two of you see eye to eye (and page to page).