Guide To Creating Independent Contractor Agreement
Introduction
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 independent contractor agreement, make sure you have the appropriate sections, and you proceed with the next steps.
Create your independent contractor agreement now
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.
"I always advise starting with determining the basic conditions of an agreement, for example, will the client pay the contractor an hourly rate or not, what is the order of payment, what is the deadline for the work/service, do the parties need to agree on the technical requirements, etc."
Karyna Pukaniuk, Head of Legal at Lawrina
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.
"You cannot bypass the clause on the transfer of intellectual property, especially if the contractor provides software development services. In this case, you will need to write down a clear procedure for the transfer of intellectual property rights."
Karyna Pukaniuk, Head of Legal at Lawrina
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.
"Sometimes the parties agree to set a certain limit in the maximum amount of liability. This option is more beneficial to the contractor. And if parties would like to remain on equal terms, they usually use the mechanism of partial limitation. For example, they set certain limits on liability unless the contractor violated the conditions of non-disclosure of commercial information or protection of intellectual property rights."
Karyna Pukaniuk, Head of Legal at Lawrina
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 save 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:
"Do not forget about formatting, convenient numbering, and headings that will make your contract readable, which will also save you time during negotiations on the main terms of the agreement."
Karyna Pukaniuk, Head of Legal at Lawrina
Extra tips
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).
"In fact, there are no unimportant clauses; each clause is a tiny cog that will make your agreement better and parties' cooperation smoother. It is also important for the parties to pay attention to such clauses as the procedure for terminating the agreement and the terms of the agreement, to clearly state the subject of the agreement, and what services or works the contractor must provide."
Karyna Pukaniuk, Head of Legal at Lawrina
Conclusion
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.
Karyna Pukaniuk, Head of Legal at Lawrina. Experienced Tax and Corporate Lawyer, team leader, and legaltech pro. Led and backed the smooth operation of the legal team and accompanied several different projects simultaneously. Worked closely with department's leads, and shareholders and advised them through all legal, regulatory, and risk management matters. Supervised multi-million dollar M&A deals and actively participated in the company's product development.
Frequently Asked Questions
An independent contractor agreement is a contract between a client and a contractor that lays out the details of the work to be performed, the terms of the contract, payment methods and due dates, type of relationship, confidentiality, and other specifics. This type of agreement is essential when hiring an independent contractor to protect both parties' rights and establish transparency.
Though not mandatory, it can be beneficial to have a lawyer help draft an independent contractor agreement. A lawyer would be fully aware of what legal language and clauses should be included to protect both parties. However, multiple online resources and templates are available for those who want to create one without legal assistance.
To ensure the independent contractor agreement is legally binding, both parties must agree to the terms and sign the document. It can be a good practice to have the document reviewed by a legal expert. If the agreement significantly impacts your business, or if there are significant risks associated with the work to be performed by the contractor, legal advice should be sought before the contract is finalized and signed.
Article by Karyna Pukaniuk