You can simplify your hiring process of an independent contractor with the use of a standardized contractor agreement. Before seeking service of an individual or an agency, it is important to clearly define the scope of work and put down all the relevant terms and conditions to avoid any kind of dispute later.
What is an independent contractor agreement?
The independent contractor is an individual or a business that is usually self-employed and provides a service or product in exchange for compensation in the form of monetary payment. Therefore, a contractor agreement is a written document that states the terms and working agreement between yourself and the contractor.
When do you need to hire an independent contractor?
Before hiring an independent contractor, you have to remember that there are some special considerations that you shouldn’t omit from the independent contractor agreement like any payments in lieu of hiring a permanent employee.
One example is the inclusion of an agreed-upon percentage or amount instead of vacation pay, benefits or other expenses like meals and travel. If you’re planning to hire an independent contractor, it’s recommended to let them sign a contractor agreement.
This ensures that all of the parties know their responsibilities, the terms, and conditions of the agreement. As expected, these terms and conditions may vary from one contractor to another.
Independent Contractor Agreements
What to include?
A contractor agreement is a written document between two parties for a specific project or service. It involves a company or a person hiring another to accomplish on a certain task.
This document isn’t the same as an employment contract in the sense that the document clearly specifies why the party you’re hiring isn’t an employee for tax and legal purposes. A contractor contract template usually includes the following elements.
- Hiring company, which is the entity in need of a contractor
- Contractor, which is the entity hired for a task or project
- Services, which are the specific descriptions of tasks to perform or products to deliver
- Compensation, which is the amount and frequency the contractor will get paid
- Effective date, which is when the job and agreement start
- Termination may happen based on the terms in your agreement
- Fringe benefits, which state that the contractor can’t take part in any of your company’s employee benefits
- Assistants of the contractor whom they hire on their own, but the contractor bears responsibility for the assistants’ expenses
Aside from the elements above, your document can also include the following:
Both parties cannot transfer the right to the job to completed or the payment to another party unless prior written permission exists.
- Binding Effect
The agreement remains in effect if another company or person takes over the contractor or your company.
- Entire Agreement
Any previous agreements you may have are no longer valid and you must make any future modifications in a written amendment.
Each party bears responsibility for their out-of-pocket expenses unless you have pre-approved specific costs and the contractor submits invoices.
- Governing Law
The laws of your state apply if you encounter any issue.
If any issues arise, the contractor should bear responsibility for it and should defend your company from liability.
Your company’s insurance policy doesn’t cover the contractor, who should bear their own insurance.
You must write and deliver all communications properly.
Both parties have the authority and power to enter the agreement to make it legally binding.
If one part of your agreement becomes invalid, the rest remains legal.
Releasing a right or claim must be in writing.
The contractor promises they have all of the permits, registrations, and licenses needed to accomplish the task or project.
Contractor Contract Templates
How to write an independent contractor agreement?
The best time to make clarifications in your contractor agreement sample is at the start of the work arrangement and the most effective way to accomplish this is by putting everything in writing.
It’s not advisable that you should work on assumptions as these can cause issues, which might result in time-consuming and costly litigations in the future. Following is a guide that can help you write a simple contractor agreement.
- Nature of the Work and General Agreement
This is the first section of the agreement which is a statement by both parties that details each other’s responsibilities.
- Independent Contractor Status
This is one of the most important parts of your contractor agreement as it clearly defines the worker as an independent contractor, not an employee. This section lists the contractor’s rights to perform jobs for others unless such services will compete or conflict with their work in your company directly. The contract should clearly specify whether the contractor must do the work or if they may hire other people to help them out.
- Contractor Payment
In this section of the contract, payments to the independent contractor are typically clarified. In general, such payments won’t include withholding for payroll taxes or income tax. Unless required by backup withholding requirements, you shouldn’t withhold federal tax from payments to the contractor. You shouldn’t set aside these payments on behalf of the contractor either.
- Who Pays the Expenses
The contract must specify who will pay for specific expenses. In most cases, the contractor is typically responsible for all of the expenses and these may include vehicle maintenance, mileage, and other travel or business expenses along with the payments to their subcontractors or employees.
- Eligibility for Benefits
Your contract should also include a statement that clarifies that the contractor understands that they aren’t entitled to or eligible for retirement or pension benefits, holiday pay, vacation pay, health insurance, sick pay, or other fringe benefits provided by employers.
The contract should also make it clear that your company won’t provide auto liability insurance, liability insurance or other general insurances for the contractor.
This means that the contractor won’t receive coverage from the liability insurance policy of your company. Including this clause gives your company protection in case any loss or injury happens that the contractor causes.
- Termination of the Contract
Since this is an agreement between your company and an independent contractor, not an employee, the agreement must specify that either party may terminate the contract without or with notice, depending on how your project pushes through or how your relationship evolves.