In today's Freedom Friday blog and email newsletter, I want to discuss another issue related to last week's topic. Last week I answered, “What is the difference between an employee and an independent contractor?” In this week's Freedom Friday blog and email newsletter, I want to talk about something that relates to independent contractors, specifically, and that's independent contractor agreements. In today's Freedom Friday blog and email newsletter, I'm answering the question, “Why does your small business need an independent contractor agreement?
First of all, not every small business needs an independent contractor agreement. If you have a super-small, small business, and it's just you doing the work, then you don't need an independent contractor agreement because you haven't hired any independent contractors yet. However, the moment you decide you need to “hire” your first independent contractor, your small business needs an independent contractor agreement. Many small businesses use independent contractors to help them get the work done; this is preferable compared 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) essential elements which should be included in every independent contractor agreement:
1. Independent Contractor Status
The first essential element to an independent contractor agreement is the independent contractor status clause. 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 essential element to an independent contractor agreement is the services to be performed clause. 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 independent contractor will perform the work.
The third essential element to an independent contractor agreement is the compensation clause. The independent contractor agreement needs to specify how the independent contractor will get paid, such as on an hourly, day rate, or project basis, a lump sum once the work is completed, or commission. The independent contractor agreement should also specify when your small business will pay the independent contractor for his or her work.
4. Deadline to Complete the Work
The fourth essential element in an independent contractor agreement is the deadline 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, it should divide the work into phases with deadlines for each phase.
The fifth essential element in an independent contractor agreement is the expenses clause. The independent contractor agreement should address whether your small business or the independent contractor will pay for such expenses as materials, equipment, mileage, and/or the travel of the independent contractor.
6. Work for Hire
The sixth essential element in an independent contractor agreement is the 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, the 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, such as a website, then your independent contractor agreement should include a work for hire clause.
The seventh essential element in an independent contractor agreement is the termination clause. The independent contractor agreement should provide how the agreement can be terminated, what notice is required, how to handle incomplete work or non-payment, etc. The agreement should also specify how to handle disputes, including whether the parties must submit to mediation or arbitration.
The eighth essential element in an independent contractor agreement is the confidentiality clause. This is also known as the non-disclosure agreement, or NDA. 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 include an NDA. This part of the agreement would legally require the independent contractor to keep confidential any proprietary, confidential, or sensitive information, and prohibit the independent contractor agreement from misusing or divulging such information without the express 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 create an independent contractor agreement to meet 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.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/