Hiring independent contractors is becoming a major trend in all companies nowadays. People think of independent contractors as employees without the hassle of employees, like unnecessary paperwork.
However, hiring independent contractors is not as paperless as you might have thought it to be. If you have an independent contractor, you need an independent contractor agreement for the purpose.
This is beneficial for protecting your interests as well as the interests of the independent contractor. Here are all the things that you need to know about independent contractor agreements.
What is an Independent Contractor?
An independent contractor is essentially a business owner in themselves, who is providing their services to you. They normally deal with income tax, self-employment tax, social security tax, medical expenses, and other similar taxes on their own.
These taxes are to be paid by themselves, and they need to manage these things themselves as well. Independent contractors can also be called as freelancers or consultants in many cases.
What is an Independent Contractor Agreement?
An independent contractor agreement details the terms under which the independent contractor is working for the business.
It should also clearly state how the independent contractor is not an employee of the business. Stating this exempts the business from any legal obligation to the independent contractor that might be due to an employee.
Some alternative names known by others include: subcontractor agreement, freelance contract, general contractor agreement, consulting service agreement, etc.
Who Can Use an Independent Contractor Agreement?
An independent contractor agreement can be used by any business who is hiring an independent contractor and wants to stay on the safe side of any legal obligations due for employees.
Further, freelancers, contractors, and consultants also often insist on getting an independent contractor agreement with their clients. This is so that they can clearly outline the inclusions and exclusions of their services, along with other important details.
What is Included in an Independent Contractor Agreement?
The terms of an independent contractor agreement can depend from scenario to scenario. In general, the following are the key components:
- Entity: An independent contractor agreement should clearly state the company or the individual that is hiring the independent contractor. This is the entity that is obligated to compensate the contractor for the services provided.
- Contractor: It should also state the independent contractor that is providing the services.
- Service: The service is provided by the independent contractor to the hiring entity. This service should be clearly mentioned in the agreement.
- Compensation: The agreement should state the money that will be paid to the freelancer in lieu of their services.
- Timeline: Timeline should state the period during which the project should be completed. Further, if there are any milestones, those can be added in the timeline as well.
- Termination: Termination of the agreement should detail if the hiring company has the power to end the contract at will. Further, it should also state the prior notice that is needed to end the contract, if any such notice is agreed upon.
- Employee Benefits Exclusion: It is a good idea to state clearly that the independent contractor is not eligible to enjoy the employee perks of the company, such as healthcare, paid leaves, sick days, etc.
- Governing Law: It shall state the laws that are applying to it. Every territory has its own laws. If either party wants to take the independent contractor agreement to the court, they should agree with the laws applicable beforehand.
- Expenses: The agreement can also state that the independent contractor should bear their own expenses. It can also list the expenses that can be paid to the hiring company, provided the contractor is providing invoices for the same.
- Severability: The severability clause states that if any part of the independent contractor agreement turns out to be invalid, the rest of the agreement is still in effect.
There can be other clauses added as well, based on what the hiring company or the freelancer seems necessary. However, any clause in the independent contractor agreement should be agreed upon by both parties.
Consequences of Not Using an Independent Contractor Agreement
If the hiring company is not using an independent contractor agreement, the independent contractor can be seen as an employee of the company. As such, for institutions such as the IRS, the hiring company is liable to pay employee benefits to the independent contractor.
However, using an independent contractor agreement can guarantee the freelancer to be exempted from any employee benefits.
How to Draft an Independent Contractor Agreement?
If you want your independent contractor agreement to hold, it should be well written and legally compliant. This cannot be done without the help of a legal expert.
This is why CocoSign provides you with customized independent contractor agreement templates perfectly suited for your needs. Therefore, if you are thinking of hiring an independent contractor, you could download the free template right away.
Now you know all about independent contractor agreements, you must realize why it is utterly important to have an independent contractor agreement. Therefore, you should download the preferred template from CocoSign without second thoughts.
Independent Contractor Agreement FAQ
Do I have to pay health benefits to the independent contractor?
No, independent contractors do not have any rights on the health benefit policies for employees that a company has.
What to do if a contractor fails to deliver on the service?
If there is a failure to provide the service or if the service is not of the quality that is promised, the independent contractor will be liable to penalties as are set in the independent contractor agreement.
Do I have to get an independent contractor agreement for my company’s employees?
No, there is no need for an independent contractor agreement for the employees of a company. The purpose of these contracts is to differentiate the contractor from an employee.
Can the contractor transfer the services to someone else?
Unless stated otherwise in the independent contractor agreement, the freelancer cannot transfer the right to provide service to someone else. In order to transfer the right to provide the service, the freelancer will need written consent from the hiring company.
Is an independent contractor responsible for work injuries on the job?
Yes, if the independent contractor has signed the independent contractor agreement, they are responsible for any work injuries suffered or any damages caused while they are providing the service.
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