Flexible work arrangement, greater independence (becoming your own boss), higher rates, no commitment. Say no more — becoming an independent contractor instead of traditional employment seems a decent option if possible. It is the best way to grow your business and personal brand without the boundaries of traditional employment.
However, for such work relationships to be successful, a company and an independent contractor need to have a clear understanding of the expectations and responsibilities. This is where an independent contractor agreement comes into play.
In this article, I’ll guide you through the essential elements you must include in the independent contractor agreement step by step.
What Is an Independent Contractor Agreement
An independent contractor agreement is a legally binding document outlining the work specifics between an independent contractor and another company or individual work. To put it simply, it’s your legal protection and security that guarantees safety even without employment rights. Since there’s no such thing as “contractor rights,” independent contractor agreements are essential for whatever service you provide or request on a freelance basis.
How to Create an Independent Contractor Agreement
Concise and readable agreements are increasingly helping to avoid legal battles between the parties. If you want to write your agreement on your own or download a ready-to-go agreement, make sure you have the appropriate sections, and you proceed with the next steps.
Step 1: Agree with the counterparty on basic conditions
Start by coordinating everything before you sit down to fill out the details. You should enter into negotiations with the other party to discuss what the compensation will be, how legal disputes will be handled, what the termination process looks like, and any other details of your cooperation.
When the parties have agreed on the basic conditions, you can start preparing the contract.
Step 2: Ensure a clear procedure for the transfer of intellectual property rights
Unless there is an agreement or contract stating otherwise, IP created by independent contractors belongs to them. Without a contract, businesses normally have an implied license to use IP created for them by contractors. That’s why you need to ensure that there is an intellectual property rights clause in your agreement both parties agree with.
Step 3: Double-check the payment terms
Payment terms will be important for the contractor. If these terms are spelled out clearly, and the payment procedure is regulated in detail, the contractor will be sure that he will receive a fair reward for his services/works.
Step 4: Pay close attention to the defects and liability clause
Important clauses in the agreement are also defects and liability. It is important for the client to be sure that he/she may return the service/work for revision if they do not meet the conditions of technical requirements or agreement. The “Defect” clause will guarantee that the client will receive exactly the work or services that he/she ordered and without defects. Liability, in turn, will protect the client from future lawsuits or claims.
Step 5: Don’t forget about taxes
Do not forget about such important points as taxes and reporting. Since contractors usually provide services or perform work for a certain fee that is usually higher, it should be stipulated in the contract right away that a person hiring a contractor is not the one responsible for taxes. Sometimes I use the following clause “The Contractor shall be responsible for all taxes applicable to him/her as an independent contractor.”
Step 6: Determine the government law
Be sure that both parties clearly understand the government law and which court they should apply to in case of a dispute. This is especially important when another party is from a different country. It will help to say a significant amount of money, and you will not need to fly to another state every time for a trial.
Step 7: Place all the terms under the agreement in a separate “definition” section
Another recommendation of mine would be to place all terms under the agreement in a separate “definition” section or in an appendix. This will also help to strengthen the transparency of the agreement and save time for its review.
Step 8: Proofread and fix the formatting
You don’t need to worry about formatting if you download Lawrina’s Independent Contractor Agreement. However, if you download any other legal form, make sure you double-check the formatting which is also important when it comes to contracts:
Here are some extra tips based on my practice that I would also highlight as the essentials of independent contractor agreement drafting:
- Try to make your agreement not too long and complicated;
- Pay attention to every clause:
- Make it as simple as possible (no unnecessary legal jargon).
For sure, it’s always better to get legal help from a professional who can ensure your agreement is 100% legally binding. However, if you are on a limited budget, make sure you implement all the steps from this article to draft a proper independent contractor agreement.