Create an Independent Contractor Agreement
Independent contractors save companies money on employment taxes as long as the relationship and scope of work between the company and the contractor is clearly outlined prior to the project's commencement. Without a clear description of how the contractor will be utilized for a project's needs, the company is at risk of costly legal disputes and possible fines imposed by the government. Although writing an independent contractor agreement is not required by law, smart employers always ask independent contractors to complete a project agreement before the work begins.
Steps
- Describe the contractor's relationship with your company. Specifically stating your intentions when hiring a freelancer is one of the first steps to create an independent contractor agreement.
- Articulate how your contractor will work with your company on a project. Reiterate that the contractor will provide deliverables completely independently of direct supervision. A true independent contractor controls when and how project deliverables arrive at the client's office.
- Remind the contractor in writing that he is not a paid employee nor is he entitled to benefits given to employees.
- Describe the project's scope of work. This helps clarify any potential misunderstandings about what is expected from the independent contractor.
- State who will pay for what supplies. Independent contractors always provide office supplies and equipment necessary to implement paid duties.
- Clarify the amount you will pay the independent contractor. Describe the total pay for the job and when you will pay for the work.
- Include a clause about project costs. State that the contractor will not earn more than the fee approved for your specific project. Remind the contractor that any amounts in excess of this fee must receive management approval before work begins.
- Set up payment terms. Tell the contractor when and how much you will pay for completed work. For example, some companies will pay 50 percent down before the project begins, then pay the balance due after management approval when the project is over.
- Document the project time frame. Indicate when the work begins and when you expect it to end.
- Include a paragraph about negotiating disputes. Outline how project disputes between the independent contractor and the company will be resolved.
- For example, will you use mediators to resolve conflicts or lawyers?
- Tell who will pay for legal expenses incurred from disputes.
- Remind the independent contractor that tax payments are not your responsibility. Independent contractors always pay their own income and employment taxes directly to the government.
Warnings
- Government tax agencies carefully screen independent contractor relationships with companies to ensure that employment laws are not being broken. Use caution when choosing words for your freelance worker agreement to avoid extra scrutiny by taxation representatives. For example, clearly state that the contractor is not an employee and will not receive employee benefits such as sick time.
