Due to new technologies and the current shift that’s happening in the workforce, more and more businesses outsource their services towards freelancers and independent contractors. This way, businesses manage to reduce clutter in the office space, optimize certain processes, and reduce costs while maintaining professional growth.
However, things may not be as simple and progressive when it comes to the legal aspect of this deal. After all, an independent contractor is not an employee and is not a separate business. This is a relatively new approach to work relationships, one that is constantly evolving, which is why there are still rules to put in place.
Still, one sure way to go about it is to make an ironclad independent contractor agreement that will protect both parties. This document is drafted and signed between a business and a freelancer, or an independent contractor, and outlines the details of the work that will be performed.
It also contains detailed information on compensation, deliverables, and other terms of the agreement. It should also specify the course of action if one of the signatory parties breaks the rules and is found in breach of contract.
Once the agreement is signed by all the parties involved, it becomes the basis for said collaboration. Such an agreement can be used for a wide array of projects and can be adapted to contain contract language that is beneficial for specific situations.
Furthermore, you can even create a ready-to-use template, such as this example from LegalZoom, that’s tailored to your needs. With a template, you won’t waste time with putting together all the details. Such a template can be used by both companies looking for independent contractors and freelancers and individuals working for these companies.
If you’re not comfortable with using a template without knowing a bit more about what it contains, below we put together a few guidelines to walk you through the process.
What Should an Independent Contractor Agreement Contain?
As we mentioned above, this document should contain all the necessary information pertaining to the work that will be performed, payment details, confidentiality issues, and more. But, to make it clear and easy to follow, the agreement is divided into sections.
Let’s go through each section and see the type of information that should be included.
This is the first section of any agreement or contract and states the names and locations of the parties involved. It also contains details about dates and a description of the project and/or the tasks to be performed.
Responsibilities & Deliverables
As the name states, this section includes a detailed description of each party’s responsibilities and what’s expected to be delivered by the independent contractor.
For instance, in the case of a freelance programmer specialized in developing mobile apps, this section could include something like “building a mobile app with five pages and a contact form that gathers user information.”
This section shouldn’t take more than a few paragraphs but should be detailed enough, so it’s clear what’s expected as the outcome. However, if the project is large and includes a series of milestones, it’s best to attach the work schedule and offer to the agreement, as an annex.
Here it should be specified how the payment will occur (per completed milestone, at the end of the project, if there is an advanced in payment, and more).
Quick note: in the case of such an agreement, it’s best to avoid paying by an hourly rate.
If we use the mobile app example, you could establish a 25% upfront payment and a 75% payment upon successful completion. You can also include a period of testing before the app is deemed successful and functional.
Large companies (especially in tech) want to make sure their know-how and work processes are protected, which is why they will include such a clause in the agreement (this is not mandatory for all situations).
Of course, the same can be said about freelancers who want to protect their intellectual property.
Quick tip: If this section needs to be more extensive, it’s best to replace it with an NDA or a non-compete agreement that will be signed as a separate document in relation to the same project.
If the project is terminated before the established end date, this is the section that defines the acceptable terms and conditions.
For instance, the freelancer can include a clause where they specify that they want to be notified 15 days prior to the date of termination. If this condition is not met, then they should be compensated accordingly.
Also, the company may want to protect their own interests by including a clause that obliges the freelancer at compensatory payments should the project suffer delays, or certain conditions are not met.
Choice of Law
This specifies the state laws under which the agreement will be enforced (which is usually where the work is being done). However, if the company has its headquarters in a different state, they may prefer to subject the agreement to that state’s law.
This is why this section should be studied carefully by both parties before signing anything.
At the end of the day, whether you use a template or create the agreement from scratch, this is still a legal document. As such, both companies and independent contractors must make sure they understand each section, and the language used to describe the terms and conditions.
If anything doesn’t look right, always trust your gut and ask for advice from a lawyer or ask for edits of the contract before signing it.
About the Author: Erika Rykun is a content manager working with LegalZoom. She is devoted to sharing useful information and helping people make informed decisions on their own.