Priority Number
Shop OurSolutions  ►

How to Create a Legal Agreement That Covers You and Your Independent Contractors

Published on 5/25/2016 12:00:00 AM
8 Components of Sound Independent Contractor Agreements

Does your business sometimes turn to freelancers, consultants and other independent contractors to get the work done? With the IRS and Department of Labor (DOL) both cracking down on misclassification of independent contractors, following the rules has never been more important.

The legalities surrounding independent contractors start and stop with you, the employer. Once you’ve done your homework and determined who is truly an independent contractor (and not an employee, based on the various tests), you need to create another layer of legal protection with a formal agreement.

The role of the written agreement with independent contractors

First things first: Independent contractors should be required to sign a contractual agreement indicating that they’re NOT an employee for tax purposes or compliance with other federal and state employment laws. The agreement also should cover:

The services to be provided
The expected results
Deadlines for the work (if applicable)
Terms of payment
Any other conditions regarding the relationship and services being performed

Although an agreement by itself is never enough to make a worker an independent contractor, it will help show the IRS and other agencies that both you and the worker intended to create an independent contractor relationship, not an employer/employee relationship.

Even still, remember that an independent contractor agreement is only useful if its terms accurately describe the relationship. To be considered an independent contractor under the law, the worker must be treated like one.

Check out the following Independent Contractor Agreement for reference on what a thorough contract should cover. Your situation may vary, however, so be certain to consult your legal advisors for specific guidance.

Sample Independent Contractor Service Agreement

Independent contractor status

It is expressly understood that the relationship of Contractor with the Company is that of an independent contractor and not that of an employer/employee or agent. The Company is interested only in the final performance of the Services (defined herein) and the results achieved thereby, and shall not exercise control over the means of Contractor’s performance.

By virtue of Contractor’s independent status, Contractor may provide services to other companies and the public at large, provided there is no conflict with the terms of this Agreement. Contractor’s independent business may be in the form of a sole proprietorship or corporation as Contractor chooses.

Contractor and its employees or agents are not entitled to any benefits that are provided by the Company to employees, such as workers’ compensation insurance, health insurance, and unemployment compensation insurance.

Contractor has no power or authority to act for, represent, or bind the Company in any manner with respect to any third party.

Contractor shall utilize Contractor’s own equipment, office space, and other resources to perform the Services described herein.

Nothing in this Agreement or in any addendum or exhibit to this Agreement shall be construed to create any relationship of principal/agent, employer/employee, master/servant, partnership or joint venture between the Company and Contractor.

Tax withholdings

Contractor agrees that Contractor is solely responsible for the payment of any and all pertinent federal, state, or local self-employment or income taxes, or other assessments levied by governmental authorities on any earnings made as a result of Contractor’s independent contractor relationship with the Company.

Since Contractor is and shall be considered an independent contractor, the Company will not make any federal or state withholding payments. The Company will provide Contractor with a 1099 independent contractor agreement form for tax purposes to reflect Contractor’s rendition of Services hereunder.

Expenses and costs

Contractor shall not incur any costs or expenses on behalf of the Company, except as specifically requested or approved in advance in writing by the Company, which approval may be withheld by the Company in the Company’s sole discretion.

All costs and expenses incurred by Independent Contractor in the performance of Contractor’s duties under this Agreement, which the Company has not specifically approved costs and expenses in advance in writing and for which Contractor fails to provide receipts, shall be the sole and exclusive responsibility of Contractor.

Contractor’s employees and subcontractors

Contractor has the right under this Contracting Agreement to hire and utilize helpers or assistants as Contractor deems necessary to perform the Services described herein. Contractor understands and agrees that such assistants are employees of Contractor and are not employees, agents, partners, or joint ventures of the Company. Contractor represents that all services rendered for or on behalf of the Company in connection with this Agreement will be performed only by competent professionals who possess the degree of skill and care that is required by current good and sound professional procedures and practices in accordance with industry standards.

Contractor understands and agrees that Contractor will be responsible for the hiring, training, supervision, discipline and discharge of Contractor’s employees. Further, Contractor agrees that Contractor shall be solely responsible for the payment of all taxes and insurance on behalf of Contractor’s employees, and will be solely responsible for all injuries suffered by Contractor’s employees and said employees shall not be regarded as agents or employees of the Company.

Contractor understands and agrees that Contractor is solely responsible for payment of compensation to all individuals Contractor employs. Contractor agrees that Contractor is responsible for deducting all applicable state and federal withholding taxes from compensation paid to Contractor’s employees. Contractor agrees to hold the Company harmless from liability for payment of any and all pertinent federal, state, or local self-employment or income taxes, or other assessments levied by governmental authorities on any earnings paid by Contractor to its employees.

Insurance

Contractor understands and agrees that Contractor is responsible for providing workers’ compensation insurance coverage for Contractor’s employees through the term of this Contractual Agreement for any acts/injuries involving Contractor or Contractor’s employees related to or arising from performance of this Agreement. Coverage must include liability for acts/injuries occurring on the Company’s premises or off its premises, if such acts/injuries occurred in connection with or related to performance of this Agreement.

Contractor shall at all times maintain and provide to the Company a certificate of coverage for current professional comprehensive general liability insurance in the amount of $[ ]. Contractor agrees that such insurance shall be maintained in force at all times during this Agreement at Contractor’s expense.

Contractor agrees that within fifteen (15) days of the date of this Agreement, Contractor shall cause the insurance company or companies to furnish the Company with certificates of Contractor’s insurance policy or policies detailing the coverage therein. Contractor also agrees that the required insurance policy or policies shall be available for inspection by the Company at all times during this Agreement. Contractor also understands and agrees that it must give notice to the Company immediately concerning any termination, alteration or other change in the status of Contractor’s insurance policy or policies.

Indemnity

Any and all liability associated with Contractor’s provision of services under this Agreement shall be the sole responsibility of Contractor. Contractor shall indemnify, defend, and hold harmless the Company and the Company’s affiliates, and their respective officers, directors, agents and representatives, from and against all liabilities, damages, claims, costs, fees and expenses whatsoever (including attorneys’ fees and court costs at trial and all appellate levels) arising out of or in connection with the performance of, or failure to perform, Contractor’s duties and responsibilities under this Contractual Agreement, including, but not limited to, any and all manner of injuries suffered by Contractor’s employees in the performance of their duties for Contractor pursuant to this Agreement or on the Company’s premises.

This indemnification shall apply to all liabilities and damages, including but not limited to, liability associated with Contractor’s breach of any contractual obligations with third parties, liability arising out of Contractor’s negligence or intentional acts or omissions committed in the performance of this Agreement or in Contractor’s unauthorized use of the Company’s name, trademark or logo or any consultation services conducted by Contractor.

Confidential information and business records

Independent Contractor shall not, while engaged by the Company and at all times thereafter, communicate or divulge any secret or confidential proprietary information relating to the Company, its clients, client lists, pricing information, or any other unique aspect of the Company’s business or business practices, directly or indirectly, to any other person or business. Contractor will direct any questions as to whether something is secret or confidential to the President or Vice-President of the Company prior to any potential disclosure.

All records, files, plans, documents and the like relating to the business of the Company which Contractor shall prepare, use, or come into contact with shall be and shall remain the sole property of the Company, shall not be copied without written permission, and shall be returned immediately to the Company upon termination of Contractor’s engagement or at the Company’s request at any time.

Intellectual property rights

The parties acknowledge and agree that any work, idea, or product created under this Contractors Agreement shall be a work for hire and that the Company shall own all right, title and interest in any such work. To the extent any such work is not a work for hire, Contractor agrees to assign all right, title and interest in and to the work to the Company and agrees to execute all documents required to evidence such assignment. Contractor agrees and understands that he will retain no ownership rights whatsoever in or to any of such works.

FEATURED SOLUTION
1099 Forms Laser Kit and Software - 4-Part
Get everything you need to complete, print, mail and file Form 1099
 
UPCOMING WEBINAR
Tuesday, June 13th, 2017
Jaime Lizotte
Presented by: Jaime Lizotte,
HR Solutions Manager
Join us for this free webinar as we explore seven common employee misconceptions about time and pay laws. We’ll reveal the real truths behind these demands, according to the latest regulations. Just as important, you will walk away with a better understanding of how to protect your rights as an employer.
LEARN MORE