Small Business News Issue 7 Volume 2 July 2015
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8 Reasons You Need an Independent Contractor Agreement If you hire an independent contractor, having a written and signed independent contractor agreement allows you to clearly define the roles and responsibilities of your business relationship. An independent contractor agreement may also help you avoid disputes, protect you from liability and keep you out of court. It is important to have an attorney review any agreement before you sign. If you need assistance call your LegalShield provider law firm. 1. Properly Classify Workers – Just because you classify a worker as an independent contractor in your agreement does not mean the IRS will agree. Incorrectly classifying an employee may have significant tax implications for your business. Read our article, “Classifying Workers: Employee or Independent Contractor”, to learn more. Once you are certain that the worker is a contractor, clearly define them as such in your agreement. 2. Outline Specific Responsibilities – Use the agreement to define the exact nature of the work to be completed. Outline materials to be used, expenses, workspace, development, delivery and any other details of the work. Set out the lines of communication. Who will be the primary point person for both parties? What is the preferred method of communication? Setting clear parameters will help avoid frustration and miscommunication. 3. Set Deadlines – Delays and missed deadlines are frequent points of contention with contractors. Clearly define any important due dates and production deadlines, as well as the consequences for failing to meet them. 4. Determine Terms of Payment – Spell out the exact cost for work to be completed and how it will be invoiced and paid. If any additional work is required that falls outside the scope of the agreement, how will it be billed? You may require written authorization before additional work is completed or set a standard hourly rate to cover overages. 5. Agree on Taxes, Benefits, Liability & Licensing – Your agreement should make it clear that the contractor is responsible for paying their own state and federal income tax. The agreement should explicitly state that the contractor is not eligible to receive any employee benefits. Also confirm that the contractor has liability insurance and is fully licensed by the state and any other relevant regulatory agencies.
6. Protect Intellectual Property – Your agreement must specify your ownership of any intellectual property created by an independent contractor on your behalf. You should also include a non-disclosure agreement, which prevents the contractor from sharing information with competitors. If a contractor has access to client payment data or any other sensitive personal information, you should have them sign a confidentiality agreement. Talk with your attorney to determine the best means to protect your business. 7. Require Dispute Resolution – You may choose to include a clause requiring disputes to be settled via mediation. This may help you avoid some legal fees in the event there is a dispute. Talk with your attorney about the options available to you and how to best protect your interests. 8. Termination of the Contract – Set the duration of your agreement. Will the agreement terminate after a year or once work is complete? Who can terminate the agreement prematurely and under what circumstances?