What should your independent contractor agreements contain? While hiring an independent contractor (as opposed to an employee) may seem like an easier option, drafting a binding agreement is still necessary and can provide you, the employer, with legal protection.
Independent contractors can be very beneficial for a small business owner, and can often save you money when it comes to certain tasks. But unless those tasks (and other terms) are spelled out in an agreement, using contractors can potentially lead to legal headaches.
Before you hire your next contractor, here are five tips to keep in mind when drafting your independent contractor agreement:
- Classification is key. It's very important to classify your workers as contractors for tax purposes. An oversight on your end can lead to trouble with the IRS. Make sure you properly classify your worker as an independent contractor and lay out a few of the key factors that point to a contractor relationship (behavioral factors and scope of control, for example) in writing.
- Scope of work must be clearly defined. The work that your independent contractors will perform for your business should be confined to a certain scope, in order to properly differentiate them from an employee. This provision should therefore include a description of the services and work that your independent contractors will render for you.
- Be specific about payment. Payment details should be clearly stipulated in the agreement. While payment by the hour, week, or month usually indicates that a worker is an employee, payment that's made based on a particular job, project, or that's based on a straight commission tends to be more common when it comes to independent contractors.
- Explain who's paying for expenses. It's important that you specify who will pay for the expenses and take care of the supplies and other necessary purchases in the course of the work performed by the independent contractor. Usually, the supplies and expenses are covered by the independent contractor himself. But it's best to have this in writing, just in case of a dispute.
- No entitlement to employee benefits. Independent contractors are not eligible for most of the benefits that employees qualify for. This includes unemployment compensation (an independent contractor is also far more free to leave whenever he or she wants to), worker's compensation, health insurance, and disability insurance.
Often, the line between an employee and an independent contractor can get blurry. That's why a legally binding agreement is very important. If you're a small business employer looking for an easy, no-fuss way to draft a proper independent contractor agreement, LegalStreet's independent contractor agreement forms can help you get the job done on your own. For more complex agreements, it may still be best to consult an experienced contracts lawyer near you.
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