With a few notable exceptions, you cannot run a business entirely by yourself. Even if you are a solopreneur, you will probably need to hire someone to work for you at some point. This usually means hiring regular employees, but many businesses are increasingly relying on independent contractors to get work done. Not only do they allow for more flexibility than a standard working agreement, but they don’t require the type of supervision and management typically required for an employee.
However, working with independent contractors does come with potential challenges. Since you don’t have direct control over how a contractor does their job, you must be certain that they will follow through with your expectations of the project. The best way to ensure this is to get it all in writing with an independent contractor agreement.
What is an Independent Contractor?
According to the IRS, independent contractors (or ICs) are self-employed professionals who are “in an independent trade, business, or profession in which they offer their services to the general public.”1 When working with an independent contractor, it is a general rule that the payer has the right to control or direct the results of the work performed, but not what will be done or how. This differs from an employee, where the payer has more direct control over aspects of the worker’s job.2
It is important to clearly differentiate between employees and ICs, as both have their own unique requirements in terms of employment law, payment, and taxes. With an employee, you’re responsible for withholding from their regular payments for tax purposes. Since an IC is considered self-employed, you do not withhold anything from the payments you make to them.3
What is an Independent Contractor Agreement?
An independent contractor agreement is a legally binding contract outlining the business relationship between a hiring company and a contractor. It should cover the scope of work, deliverables, payments, deadlines, and any other details of the job and the independent contractor relationship. The agreement might also provide guidance regarding any confidentiality requirements, insurance, and indemnification. An independent contractor agreement is designed so that both parties can effectively cover their bases, manage expectations, and avoid any confusion or misunderstandings.
- The names and signatures of all associated parties, including the IC and the client, along with the contact information for each party.
- A statement that you and the IC agree to an independent contractor relationship.
- The state under which the contract falls, and which will enforce the specifics of the contract if necessary.
- A description of the services the IC will perform, along with the expected terms of the agreement.
- A description of any training that the IC must undertake to prepare for the project.
- A description of how much you will pay the IC
- A description of how and when you will pay the IC (usually either as fixed fee for a finished product or a sum based on unit of time).
- An explanation of who is responsible for expenses (ICs usually pay their own expenses).
- An explanation of who will provide materials, equipment, and office space (ICs usually provide these things, but not always)
- A description of the circumstances under which you or the IC can terminate the agreement
- An explanation of how you and the IC will resolve any disputes.
- Any confidentiality or trademark protections for the project.
- Any non-compete or non-solicitations clauses needed for the project.
You can also include any additional information, clauses, and protections that would be necessary for your specific situation. Additionally, it is important to consider situations where the contract might need to be renewed. If any information about the company or the IC changed, you will need to update the contract to include these changes. This is also the case if the scope of the work or the payment terms changes as well.
Do You Need An Independent Contractor Agreement?
While you can technically get by with just having a verbal agreement when working with an IC, it is almost always a better idea to have a written contract instead. You don’t have as much control over how a job is done with a contractor compared to simply hiring an employee, so in some regards, it is more important to have clear expectations set for how a job needs to be completed. Not only does this ensure that there is no confusion regarding your terms and requirements, but if something goes wrong, your agreement contract will serve to protect your rights.
Remember: always get it in writing!
1. Internal Revenue Service. (n.d.). Independent Contractor Defined. Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined.
2. Administration for Children and Families. (2018, October 23). What’s the Difference Between an Independent Contractor and an Employee? Administration for Children and Families. https://www.acf.hhs.gov/css/training-technical-assistance/whats-difference-between-independent-contractor-and-employee.
3. Murray, J. (2020, September 24). Important Terms to Include in an Independent Contractor Agreement. The Balance – Small Business. https://www.thebalancesmb.com/important-terms-in-an-independent-contractor-agreement-398613.
4. ContractsCounsel. (n.d.). Independent Contractor Agreement. ContractsCounsel. https://www.contractscounsel.com/t/us/independent-contractor-agreement.
5. Guerin, L. (2012, June 5). Put Your Independent Contractor Agreements in Writing. Nolo. https://www.nolo.com/legal-encyclopedia/put-independent-contractor-agreements-writing-29713.html.