Independent Contractor Agreement: A Step-by-Step Guide

Independent Contractor Agreement

Independent Contractors can seem like a business owner’s dream come true!

They offer all the services of an employee, with none of the taxes or benefits require.

However it is possible for an Independent Contractor to turn into a business owner’s worst nightmare.

Independent Contractors perform important jobs, and can damage a company irreparably if they deliver shoddy work or give away trade secrets.

How do you protect yourself from a dishonest or unqualified Independent Contractor?

By getting an Independent Contractor Agreement drafted by a contract lawyer, you protect your business while having your business’s best interests in mind.

As a contract lawyer, I’ve successfully drafted hundreds of contracts for my clients, and I can definitely help you with yours.

If you’re looking to get your Independent Contractor Agreement reviewed or drafted, email me at sam@mollaeilaw.com

 

What is Independent Contractor Agreement?

An Independent Contractor Agreement outlines the duties, rights, and responsibilities of both a company and an Independent Contractor for any particular job.

An Independent Contractor Agreement is different than an employee agreement because the duties of an Independent Contractor and an employee are very different.

While an Independent Contractor and an employee may perform similar duties, Independent Contractors are generally given more freedom in how they accomplish those duties.

Because the Independent Contractor has this extra degree of freedom, they do not receive employee benefits such as vacation, health insurance, or tax withholding.

Because the relationship between a company and an Independent Contractor is so important, Independent Contractor Agreements exist to protect the interest and rights of both parties.

Is your company ready to hire an Independent Contractor?

Do you need help drafting an Independent Contractor Agreement?

Email me now at sam@mollaeilaw.com so I can start working on your Independent Contractor Agreement today.

 

Why Have an Independent Contractor Agreement?

Having an Independent Contractor Agreement protects your company in the short term and in the long term.

Sometimes it is necessary to bring an Independent Contractor on board to perform some crucial job within the company. However doing so brings a certain degree of risk.

What if the person I hire turns out not to be qualified for the Independent Contractor duties I need?

What if my Independent Contractor gives away trade secrets or confidential company information?

How do I handle it if an Independent Contractor takes my money and refuses to deliver on their promises?

What if my Independent Contractor claims they are actually an employee?

These are all important questions to consider as you write your Independent Contractor Agreement.

However, the important thing is that without an Independent Contractor Agreement in place you have no protection from these kinds of problems whatsoever and could lose thousands of dollars.

 

When to Use Independent Contractor Agreement?

Every time you hire an Independent Contractor, you need to protect yourself with an Independent Contractor Agreement.

No matter how small a job might be, it is important to have the Independent Contractor performing it bound by an Independent Contractor Agreement.

An Independent Contractor Agreement does so much more than simply protect your company legally. It can also outline the expectations of the Independent Contractor, and keep your company’s privacy and trade secrets secure.

If you hire an Independent Contractor but fail to bind them through an agreement, you will have no recourse if they tarnish your company’s reputation or fail to deliver on their promises.

It isn’t difficult to have a lawyer draft a template for each type of Independent Contractor your company needs to hire. Once you have the basics down, simply have each party sign the legally binding agreement and you’re on your way!

 

What Do You Put in Independent Contractor Agreement?

At a minimum, your Independent Contractor Agreement should cover the responsibilities each party has to the other.

An Independent Contractor Agreement should include the following:

  • Who is being hired. Be sure to clearly define the parties so there is no confusion further down the line.
  • What sort of services are being provided. Having the services spelled out will make it easy to enforce the Independent Contractor Agreement if the requirements are not met properly.
  • When the relationship begins and ends. This will ensure that the Independent Contractor cannot claim you owe them a six month retainer when you clearly only hired them for three months.
  • Why the contractor is not an employee.
  • How the contractor will be paid.
  • Dispute resolution.
  • Termination of the contract.
  • Any applicable privacy/NDA protection your company requires.

If you have any questions about what belongs in an Independent Contractor Agreement, I can be reached any time by email at sam@mollaeilaw.com.

 

Include an NDA and Non-Compete in Your Independent Contractor Agreement

Adding Non-Disclosure Agreements and Non-Competes will protect your company’s trade secrets and keep you from being sold out to a competitor.

A Non-Disclosure Agreement, or an NDA, binds the Independent Contractor from discussing work done for your company except in circumstances such as to the IRS or under oath.

This is important because as Independent Contractors are not employees, they could easily go work for your competitor once their time with you is over.

If you don’t protect your company’s information with an NDA there is absolutely nothing stopping an Independent Contractor from telling your biggest business rivals exactly how you operate.

Another privacy consideration when drafting your Independent Contractor Agreement is a non-compete. It is true that very broad non-competes are unenforceable, but it is possible to enforce a non-compete under limited circumstances.

Have a qualified business lawyer review your Independent Contractor Agreement to determine whether the non-compete therein is valid.

 

Decide Whether Independent Contractor Can Subcontract Their Work

If you absolutely will not allow an Independent Contractor to subcontract out the work they perform for you, you must specify this in the Independent Contractor Agreement.

Surprisingly, the person that you hire as an Independent Contractor is not always the one doing your work. It is common for an Independent Contractor to accept your job and hire an overseas contractor to do the actual work for much less money.

If all you care about is the work product being completed and you are not overly concerned about quality, by all means allow this.

On the other hand if you want to be sure the person you carefully screened and are paying to complete work is the one performing it, you need to be sure of this through a solid Independent Contractor Agreement.

In addition to quality concerns, there are serious privacy concerns if an Independent Contractor farms out their work so for your business’s sake, stop this practice before it starts.

 

How Do You Pay an Independent Contractor?

There are many ways to pay an Independent Contractor, as long as you have the payment terms clearly defined in your Independent Contractor Agreement you will be protected.

One thing to consider when deciding how to pay your contractor is how often you will pay your Independent Contractor. A few ways you can go include a weekly or monthly retainer, an hourly rate, or payment per project.

All of these payment methods are more than suitable, and your accountant or a qualified business lawyer can tell you which is right for your business.

The other factor when deciding how to pay an Independent Contractor is the payment method. The three most common methods are PayPal, bank transfer, or checks.

It is likely that your Independent Contractor will have their preferred method, so be sure to get this information before signing any Independent Contractor Agreement.

 

Independent Contractor Agreement California

If you’re signing an Independent Contractor Agreement in California there are a few important things that you must keep in mind.

Some business owners like to have their employees sign Independent Contractor Agreements so they can have an easier time with taxes and not have to deal with unemployment and have 100% of the benefits of an employee.

However tempting this might be, this is a very bad idea for you and your business.

While there are no hard and fast laws determining the difference between an Independent Contractor and an Employee, is is thought by the California government that in order to qualify as an Independent Contractor and not an employee, these criteria must be considered:

  • Whether the worker supplies the tools for performing the job.
  • The length of time the worker is performing the services.
  • Whether the services are a normal part of the company’s doing business.
  • If the services rendered require a special skill.
  • The permanence of the working relationship.

These are just a few factors that will come into play when a court must decide if a worker is an employee or an Independent Contractor.

 

How to Write Independent Contractor Agreement?

In order to write the best possible Independent Contractor Agreement, you should have a qualified business lawyer draft a template that can be used repeatedly.

An Independent Contractor Agreement is a very important legal document. The future of your business could depend on how well it stands up to a court of law.

If there exists any hole in your Independent Contractor Agreement, you could face consequences ranging from losing hundreds of thousands of dollars to losing a hold on valuable business secrets.

Because the Independent Contractor Agreement is such a crucial piece of documentation that will be used again and again, have a lawyer draft it for you. Having a lawyer prepare an ironclad Independent Contractor Agreement once will save you a far greater amount of time and money down the road.

I’ve helped hundreds of business owners like you with starting their businesses the right way. Email me today at sam@mollaeilaw.com with any business questions you might have.

 

What are the Taxes for an Independent Contractor?

Because Independent Contractors are not employees, they are responsible for paying their own taxes and reporting their earnings to the IRS.

Of course, at the beginning of every relationship you have with an Independent Contractor you must have them fill out the appropriate tax paperwork for your own business purposes. After all you have to report paying Independent Contractor fees above a certain amount to the IRS.

Still the ease of having Independent Contractors report their own income and pay their own taxes is one of the many reasons that companies are starting to hire more and more Independent Contractors.

 

How to Negotiate Independent Contractor Agreement

The key to negotiating a favorable Independent Contractor Agreement is knowing before hand what you will and will not accept as terms.

When negotiating, you should walk in to the meeting with an ideal budget and deadline already in mind. As the Independent Contractor is not an employee, you may leave how they get the job done up to them.

However do not let the Independent Contractor up sell you on services you have no need for or agree to add another month onto the job and subsequent bill.

Being firm with your Independent Contractor will let them know that you are the one in charge and that you cannot be milked for more money than the job actually requires.

Having an experienced business lawyer on your side will make sure you get the best possible Independent Contractor Agreement. Email me today at sam@mollaeilaw.com so I can fight for your interests.

 

How to Keep From Being Responsible for Independent Contractor Mistakes

Including an indemnification clause in your Independent Contractor Agreement will keep you from being held legally liable for their mistakes. This is a crucial part of any contract.

When one party indemnifies another, it means that they will cover the losses experienced by the other party in limited circumstances. Requiring your Independent Contractor to defend and indemnify you in a court of law will ensure that you are not on the hook for any large mistakes made that are entirely the fault of your Independent Contractor.

 

How to Terminate Independent Contractor Agreement

It is important to specify how either party can terminate the Independent Contractor Agreement clearly within the document itself.

One of the main reasons that companies hire Independent Contractors is that they do not have to treat them like regular employees. Still, the day might come where you need to end your Independent Contractor Agreement early and you should account for these things when spelling out how to do so:

  • How far in advance either party must give notice of termination
  • The reasons either party may terminate the contract
  • What constitutes termination of the contract
  • How to handle the final payment to the Independent Contractor

These are just a few things that your termination clause should include. Contact a business lawyer for a more thorough explanation of how you can write an effective termination clause into your Independent Contractor Agreement.

 

Conclusion

An Independent Contractor Agreement is an important legal document, and should be written very carefully.

Because you’re likely to work with a number of Independent Contractors it is crucial to have a well written Independent Contractor Agreement that fully protects your business and its interests.

Still, as a busy entrepreneur, you probably don’t have several years to attend law school and learn how to write an airtight contract.

That’s where I come in.

Email me at sam@mollaeilaw.com so I can get started on the perfect Independent Contractor Agreement for you.