In today’s Freedom Friday blog and email newsletter, I want to talk about another important topic that doesn’t come up often enough, and that’s independent contractor agreements. I routinely get asked to draft independent contractor agreements of some nature or another. In today’s Freedom Friday blog and email newsletter, I’m talking about key ingredients for independent contractor agreements.
The moment your small business decides to hire your first “independent contractor” (sometimes erroneously called a 1099 employee), you need to have a solid independent contractor agreement for that person. Here are eight (8) key ingredients that are necessary to create a solid independent contractor agreement:
1. Independent Contractor Status
The first key ingredient for a solid independent contractor agreement is the independent contractor status clause. The agreement must be clear that the relationship between the parties is that of an independent contractor and not employer-employee, partnership, joint venture, or something else. The agreement should also provide that the independent contractor is not entitled to benefits such as workers’ compensation or tax withholding.
2. Services to be Performed
The second key ingredient for a solid independent contractor agreement is the services to be performed clause, also called the scope of work. The agreement should specifically describe the services to be provided by the independent contractor along with any restrictions or requirements in how, where, and when the independent contractor will perform the work.
3. Compensation
The third key ingredient for a solid independent contractor agreement is the compensation clause. The independent contractor agreement needs to specify how the independent contractor will be paid, such as on a monthly, day rate, or project basis, a lump sum once the work is completed (common in construction contracts), a commission, or some combination of the above. The agreement should also specify when your small business will pay the independent contractor for the work.
4. Deadline to Complete the Work
The fourth key ingredient for a solid independent contractor agreement is the deadline to complete the work, especially in construction contracts. The agreement should provide when the independent contractor begins the work and more importantly the deadline to complete it, especially if it’s a long project. The agreement can also divide the work into phases with deadlines for each phase.
5. Expenses
The fifth key ingredient for a solid independent contractor agreement is the expenses clause. The agreement should address whether your business or the independent contractor will pay for any expenses, and if so, which expenses each will be responsible for covering. This includes expenses such as materials, equipment, mileage, and/or the travel of the independent contractor.
6. Work for Hire
The sixth key ingredient for a solid independent contractor agreement is the work for hire clause. Usually anything an independent contractor develops, invents, creates, or makes is the property of the independent contractor. However, the work for hire clause provides that any copyrights, titles, and/or interest arising from the work performed by the independent contractor in the course of your working relationship with him or her will be transferred to your business. So, if you hire an independent contractor to create something with proprietary value, e.g., a website, then your agreement should include a work for hire clause.
7. Termination
The seventh key ingredient for a solid independent contractor agreement is the termination clause. The agreement should provide how it can be terminated, what notice is required, how to handle incomplete work, non-payment, breaches, and related issues. The agreement should also specify how to handle disputes, including whether or not the parties must submit to mediation or arbitration before filing a lawsuit.
8. Confidentiality
The eighth key ingredient for a solid independent contractor agreement is the confidentiality clause. This is also known as a non-disclosure agreement, or NDA. If the independent contractor will be exposed to confidential, sensitive, or otherwise proprietary information in the scope of his or her work, then the agreement should include an NDA. This part of the agreement would legally require the independent contractor to keep such information confidential and prohibit him or her from misusing and/or divulging to third parties such information without the express permission or consent of your small business.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at Jonathan@libertylegalok.com to schedule a FREE strategy session.
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