9 Key Provisions to Include in Your Independent Contractor AgreementSep 05, 2023
Are You Hiring an Employee or an Independent Contractor?
How you classify your workers is an important part of the hiring process. For a discussion of the differences between employees and independent contractors, read my blog, How Employees and Independent Contractor Differ in 5 Key Ways, which discusses the basic differences between employees and independent contractors. If you are hiring an employee, you’ll most likely want to hire an employee at will. This means that the employee can be terminated at any time, by either you or the employee, and for any reason or no reason. You won’t have an employment agreement with this person, but instead will document the relationship with an offer letter and the job description that you wrote. If you are hiring an independent contractor, you’ll want to have an agreement in place with this person, or with their business. This agreement should identify the work that the independent contractor will perform for you, how and when you’ll pay them, and how the relationship can be terminated by either party.
What Makes Someone An Independent Contractor?
In a future blog I’ll discuss the factors that the federal government and different states consider in determining whether your team member is an employee or can be classified as an independent contractor. The default position that both the federal government and states take is that your worker is an employee unless you can demonstrate that certain conditions apply that permit them to be classified as an independent contractor. The law in this area is constantly evolving and changing. Even though an increasing number of workers are interested in contract or gig work, federal and state laws are not keeping pace with this trend. In an article by Fortunly, Gig Economy Statistics: The New Normal in the Workplace, it’s clear that a growing number of workers are interested in participating in the gig economy. However, whether a worker is classified as an employee or an independent contractor isn’t up to parties, but instead is governed by what the applicable law says. If a person working for you can’t meet the tests to be classified as an independent contractor as dictated by federal and state law, you can’t classify them as an independent contractor, even if that’s what both you and your worker agree to do. The law does not permit you to alter the legal requirements for worker classification by signing a contract to handle it differently. Misclassification of workers is a costly mistake, and can result in fines and penalties, which are assessed against the hiring company.
Why Independent Contractor Agreements Are Critical for Your Online Business
Many online businesses hire independent contractors to take on some of the tasks in their businesses. It’s critical that you have an agreement in place with your independent contractors for several reasons. As I explained in my blog, 7 Key Questions About Legally Protecting Your Online Business with DIY Legal Templates, and in this blog, Three Essential Components to Make Your Online Business Contracts Enforceable, contracts are extremely important in your online business. They really are your Business BFF because they help you manage expectations between the parties and identify the key business terms in the relationship. If everything is going along according to how the parties expected things would go, you may never even pull out the contract again to read it. When things aren’t going according to plan, or at least how you expected they would go, your contract is a crucial document to have to sort out your rights and obligations.
What are the Essential Terms of an Independent Contractor Agreement?
The independent contractor agreement will identify the parties, and have a place where both parties sign. Beyond these basis, let’s take a look at the kinds of terms you’ll find in an independent contractor agreement:
Services: There will be a description in the independent contractor agreement of what services will be provided by the independent contractor. Both parties will want to take care to draft this section carefully as it spells out the business terms between the parties. As the hiring company, you will want to specify the work you need performed, and the independent contractor will want to know the limits of what they are expected to do for you.
Term & Termination: The independent contractor agreement will have a term - how long the agreement lasts - and will specify how and under what circumstances the parties can terminate the agreement before the end of the specified termination date.
Compensation: The independent contractor agreement will spell out how the independent contractor is paid. Payment might be hourly, by the job or on a monthly fixed fee. The independent contractor agreement will also provide details on how and when payments are made.
Confidentiality: The independent contractor agreement will require the independent contractor to maintain confidential information learned about your business while they are performing services for you.
Intellectual Property: The independent contractor agreement will describe how intellectual property rights of the parties are handled, both for existing work of the independent contractor and new work developed during the relationship.
Indemnification: The independent contractor agreement will provide certain indemnification protections to the company they are working for. Indemnification means that the independent contractor would be required to make the company whole for losses or damages in certain circumstances.
Dispute Resolution: The independent contractor agreement will set forth how disputes are resolved, and what state’s laws will apply if there is a dispute. Dispute resolution mechanisms can include negotiations, mediation, arbitration or litigation, or some combination of these.
Relationship of the Parties: The independent contractor agreement will identify the relationship of the parties so it’s understood that the relationship is that of an independent contractor and not another type of relationship.
Other Legal Provisions: The independent contractor agreement will contain a few other provisions that help with the interpretation of the contract if there is ever a dispute. These provisions include topics such as: waivers, assignment, amendments, official notices, invalid provisions, and recognition of the independent contractor agreement as the full agreement between the parties.
Ready to Make Your First (or Next) Hire? Set Your Team Member Up for Success
Hiring for your business is an exciting milestone. You’ve reached the point where you are not doing it all yourself and you can afford to hire help. Having others working alongside you contributing to your business is an empowering feeling. On the Blog over the past couple of weeks I’ve discussed How to Nail Your First Hire with a Standout Job Description, and Why You Should Adopt a Hire Slow Fire Fast System in Your Online Business. Taking steps to outline the work that you need done, taking the time to hire the right person for the job, ending the relationship reasonably fast if you need to, and properly classifying your worker will all contribute to the most success possible as you build out your business and your team.
Having an Independent Contractor Agreement Customizable Template, which you can find in my Template Shop, is one way you can Step Up Your Legal™ in your online business and help get legal protection in place.