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.
INDEPENDENT CONTRACTOR AGREEMENT
I. The Parties. This Agreement is made between:
Client: ____________________ with a mailing address of ____________________, City of ____________________, State of ____________________, (“Client”)
Contractor: ____________________ with a mailing address of ____________________, City of ____________________, State of ____________________ (“Contractor”).
WHEREAS the Client intends to pay the Contractor for Services provided, effective ____________________, 20___, under the following terms and conditions:
II. The Services. The Contractor agrees to perform the following: ________________________
Hereinafter known as the “Services”.
III. Payment. In consideration for the Services to be performed by the Contractor, the Client agrees to pay the following: (check one)
☐ - $____ / Hour.
☐ - $____ for the Services.
☐ - Commission in the amount of: __________________________________________.
☐ - Other: _____________________________________________________________.
Completion shall be defined as the fulfillment of Services as described in Section II in accordance with industry standards and to the approval of the Client, not to be unreasonably withheld.
The Contractor agrees to be paid: (check one)
☐ - At completion of the Services performed.
☐ - On a ☐ weekly ☐ monthly ☐ quarterly basis beginning on ____________________, 20___ until the completion of the Services.
☐ - Other. _____________________________________________________________.
IV. Due Date. The Services provided by the Contractor shall: (check one)
☐ - Be completed by ____________________, 20___.
☐ - Not have a due date.
☐ - Other. _____________________________________________________________.
V. Expenses. The Contractor shall be: (check one)
☐ - Responsible for all expenses related to providing the Services under this Agreement. This includes, but is not limited to, supplies, equipment, operating costs, business costs,
employment costs, taxes, Social Security contributions/payments, disability insurance, unemployment taxes, and any other cost that may or may not be in connection with the Services provided Contractor.
☐ - *Reimbursed for the following expenses that are attributable directly to the Services performed under this Agreement: ___________________________________________.
*The Client will be required to pay the Contractor within thirty (30) days of any Expense after receiving an itemized expense statement from the Contractor. Upon request by the Client, the Contractor may have to show any receipt(s) or proof of purchase for said Expense(s).
VI. Liability Insurance (Minimum ($) Amount). The Contractor agrees to bear all responsibility for the actions related to themselves and their employees or personnel under this Agreement. In addition, the Contractor agrees to obtain comprehensive liability insurance coverage in case of bodily or personal injury, property damage, contractual liability, and cross-liability (“Liability Insurance”).
The minimum amount ($) for the Liability Insurance shall: (check one)
☐ - Be a minimum amount of combined single limit of $________________.
☐ - Not have a minimum amount required.
VII. Termination. This Agreement shall terminate upon the: (check one)
☐ - Completion of the Services provided.
☐ - Date of ____________________, 20___.
☐ - Other. _____________________________________________________________.
In addition, the Client or Contractor may terminate this Agreement, and any obligations stated hereunder, with reasonable cause by providing written notice of a material breach of the other party; or any act exposing the other party to liability to others for personal injury or property damage.
VIII. Option to Terminate. The Client and Contractor shall: (check one)
☐ - Have the option to terminate this Agreement at any time by providing ____ days’ written notice.
☐ - Not have the option to terminate this Agreement unless there is reasonable cause, as defined in Section VII.
IX. Independent Contractor Status. The Contractor, under the code of the Internal Revenue Service (IRS), is an independent contractor, and neither the Contractor's employees or contract personnel are, or shall be deemed, the Client's employees.
In its capacity as an independent contractor, Contractor agrees and represents: Contractor has the right to perform services for others during the term of this Agreement; Contractor has the sole right to control and direct the means, manner, and method by which the Services required by this Agreement will be performed. Contractor shall select the routes taken, starting and ending times, days of work, and order the work is performed; Contractor has the right to hire assistant(s) as subcontractors or to use employees to provide the Services required under this Agreement. Neither Contractor, nor the Contractor’s employees or personnel, shall be required
to wear any uniforms provided by the Client; The Services required by this Agreement shall be performed by the Contractor, Contractor’s employees or personnel, and the Client will not hire, supervise, or pay assistants to help the Contractor; Neither Contractor nor Contractor’s employees or personnel shall receive any training from the Client in the professional skills necessary to perform the Services required by this Agreement; and Neither the Contractor nor Contractor’s employees or personnel shall be required by the Client to devote full-time to the performance of the Services required by this Agreement.
X. Business Licenses, Permits, and Certificates. The Contractor represents and warrants that all employees and personnel associated shall comply with federal, state, and local laws requiring any required licenses, permits, and certificates necessary to perform the Services under this Agreement.
XI. Federal and State Taxes. Under this Agreement, the Client shall not be responsible for:
Withholding FICA, Medicare, Social Security, or any other federal or state withholding taxes from the Contractor’s payments to employees or personnel or make payments on behalf of the Contractor; Make federal or state unemployment compensation contributions on the Contractor’s behalf; and the payment of all taxes incurred related to or while performing the Services under this Agreement, including all applicable income taxes and, if the Contractor is not a corporation, all applicable self-employment taxes. Upon demand, the Contractor shall provide the Client with proof that such payments have been made.
XII. Benefits of Contractor’s Employees. The Contractor understands and agrees that they are solely responsible for shall be liable to all benefits that are provided to their employees, including but not limited to, retirement plans, health insurance, vacation time-off, sick pay, personal leave, or any other benefit provided.
XIII. Unemployment Compensation. The Contractor shall be solely responsible for the unemployment compensation payments on behalf of their employees and personnel. The Contractor shall not be entitled to unemployment compensation in connection with the Services performed under this Agreement.
XIV. Workers’ Compensation. The Contractor shall be responsible for providing all workers’ compensation insurance on behalf of their employees. If the Contractor hires employees to perform any work under this Agreement, the Contractor agrees to grant workers’ compensation coverage to the extent required by law. Upon request by the Client, the Contractor must provide certificates proving workers’ compensation insurance at any time during the performance of the Service.
XV. Indemnification. The Contractor shall indemnify and hold the Client harmless from any loss or liability from performing the Services under this Agreement.
XVI. Confidentiality. The Contractor acknowledges that it will be necessary for the Client to disclose certain confidential and proprietary information to the Contractor in order for the Contractor to perform their duties under this Agreement. The Contractor acknowledges that disclosure to a third party or misuse of this proprietary or confidential information would irreparably harm the Client. Accordingly, the Contractor will not disclose or use, either during or after the term of this Agreement, any proprietary or confidential information of the Client without the Client's prior written permission except to the extent necessary to perform Services on the Client's behalf.
Proprietary or confidential information includes, but is not limited to: The written, printed, graphic, or electronically recorded materials furnished by Client for Contractor to use; Any
written or tangible information stamped “confidential,” “proprietary,” or with a similar legend, or any information that Client makes reasonable efforts to maintain the secrecy of business or marketing plans or strategies, customer lists, operating procedures, trade secrets, design formulas, know-how and processes, computer programs and inventories, discoveries, and improvements of any kind, sales projections, and pricing information; and information belonging to customers and suppliers of the Client about whom the Contractor gained knowledge as a result of the Contractor's Services to the Client. Upon termination of the Contractor's Services to the Client, or at the Client's request, the Contractor shall deliver to the Client all materials in the Contractor's possession relating to the Client's business. The Contractor acknowledges any breach or threatened breach of confidentiality that this Agreement will result in irreparable harm to the Client for which damages would be an inadequate remedy. Therefore, the Client shall be entitled to equitable relief, including an injunction, in the event of such breach or threatened breach of confidentiality. Such equitable relief shall be in addition to the Client's rights and remedies otherwise available at law.
XVII. Proprietary Information. Proprietary information, under this Agreement, shall include:
The product of all work performed under this Agreement (“Work Product”), including without limitation all notes, reports, documentation, drawings, computer programs, inventions, creations, works, devices, models, work-in-progress and deliverables will be the sole property of the Client, and Contractor hereby assigns to the Client all right, title and interest therein, including but not limited to all audiovisual, literary, moral rights and other copyrights, patent rights, trade secret rights and other proprietary rights therein. Contractor retains no right to use the Work Product and agrees not to challenge the validity of the Client’s ownership in the Work Product;
Contractor hereby assigns to the Client all right, title, and interest in any and all photographic images and videos or audio recordings made by the Client during Contractor’s work for them, including, but not limited to, any royalties, proceeds, or other benefits derived from such photographs or recordings; and The Client will be entitled to use Contractor's name and/or likeness in advertising and other materials.
XVIII. No Partnership. This Agreement does not create a partnership relationship between the Client and the Contractor. Unless otherwise directed, the Contractor shall have no authority to enter into contracts on the Client's behalf or represent the Client in any manner.
XIX. Assignment and Delegation. The Contractor may assign rights and may delegate duties under this Agreement to other individuals or entities acting as a subcontractor (“Subcontractor”). The Contractor recognizes that they shall be liable for all work performed by the Subcontractor and shall hold the Client harmless of any liability in connection with their performed work.
The Contractor shall be responsible for any confidential or proprietary information that is shared with the Subcontractor in accordance with Sections XVI & XVII of this Agreement. If any such information is shared by the Subcontractor to third (3rd) parties, the Contractor shall be made liable.
XX. Governing Law. This Agreement shall be governed under the laws in the State of ____________________.
XXI. Severability. This Agreement shall remain in effect in the event a section or provision is unenforceable or invalid. All remaining sections and provisions shall be deemed legally binding unless a court rules that any such provision or section is invalid or unenforceable, thus, limiting the effect of another provision or section. In such case, the affected provision or section shall be enforced as so limited.