In this week's Freedom Friday blog and email newsletter, I want to talk about a topic that often comes up when a small business is looking to grow or expand, and that is independent contractor agreements. I often get asked, “Why does my small business need an independent contractor agreement?” Well, first of all, not every small business needs an independent contractor agreement. If you have a super-small small business, and its just you doing the work, and you have no independent contractors helping you, then you don't need to have an independent contractor agreement. However, the minute you decide you need to “hire” an independent contractor to help you with the work, you need an independent contractor agreement. Many small businesses use independent contractors to help them get the work done; this is preferable to hiring a full-fledge employee. But, if you do decide to use an independent contractor, you need to have an independent contractor agreement.
Here are eight (8) key provisions which should be included in every independent contractor agreement:
1. Independent Contractor Status
The first key provision to an independent contractor agreement is declaring the status as an independent contractor. The agreement must be clear that the relationship between the parties is that of independent contractor, and not employer-employee, partnership, joint venture, or something else. The agreement should also provide that the independent contractor will not be entitled to benefits such as workers' compensation or tax withholding.
2. Services to be Performed
The second key provision in an independent contractor agreement is the services to be performed by the independent contractor. The independent contractor agreement should specifically describe the services which will be provided by the independent contractor. The agreement should also provide any restrictions or requirements in how, where, and when the work will be performed by the independent contractor.
The third key provision in an independent contractor agreement is compensation. The independent contractor agreement needs to specify how the independent contractor will be paid, such as on an hourly or day rate, a lump sum once the work is completed, or on a commission basis. The independent contractor agreement should also specify when your small business will pay the independent contractor for his or her work.
4. Time Period to Complete the Work
The fourth key provision in an independent contractor agreement is the time period to complete the work. The independent contractor agreement should provide when the independent contractor can start and finish the work, and if it's a long project, divide the work into phases with deadlines for each phase.
The fifth key provision in an independent contractor agreement is expenses. The independent contractor agreement should address whether your small business or the independent contractor will pay for expenses such as materials, equipment, mileage, and/or the travel of the independent contractor.
6. Work for Hire Clause
The sixth key provision in an independent contractor agreement is a “work for hire” clause. The default rule is that anything an independent contractor develops, invents, creates, or makes is the property of the independent contractor. However, a “work for hire” clause provides that any copyrights, titles, and 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 small business. So, if you hire an independent contractor to create something with proprietary value, e.g. building your website or graphic design, then your independent contractor agreement should include a “work for hire” clause.
The seventh key provision in an independent contractor agreement is termination. The independent contractor agreement should provide how the agreement can be terminated, how much notice is required, how to handle outstanding work or payments, etc. The agreement should also specify how to handle a dispute between the parties, including whether the parties must submit to mediation or arbitration.
Lastly, the eighth key provision in an independent contractor agreement is the confidentiality clause, also known as the non-disclosure agreement. If the independent contractor will be exposed to confidential or sensitive information in the scope of his or her work, then the independent contractor agreement should have a non-disclosure provision. This part of the agreement would legally require the independent contractor to keep confidential any proprietary, confidential, or otherwise sensitive information, and prohibit the independent contractor from misusing or divulging such information without the permission or consent of your small business.
Independent contractor agreements should be customized specifically for your small business. As always, it is best to consult with an attorney who can help tailor an independent contractor agreement for the unique needs of your small business.
If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, please contact me at [email protected] to schedule a FREE strategy session.
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