An independent contract agreement is a contract between a freelancer and a company or client outlining the specifics of their work together. Companies use it as a way to set expectations, clarify roles, and use appropriate documents for taxes and record-keeping purposes.
Legally, a 1099 independent contractor must still file taxes for any income they earn as an independent worker. This is why the 1099 employee form is important on top of an independent contractor agreement.
Here are 8 things you should always include in an independent contractor agreement when hiring an independent contractor or signing a contract as a freelancer.
1. Parties Involved
Start the document by describing the independent contractor and to whom they will provide services. For example, a contractor may work for an individual, or they could offer their services to a company on a freelance basis.
2. Time Frame of Project
Because they are not employees, companies cannot mandate working hours or schedules for independent contractors. However, they can require a schedule for their project.
Establish a time frame for the services and set a deadline for any deliverables.
The time and length of the project are important features that will make the contract legally binding.
Without a specified time and end date, it will become more difficult for either party to request payment or services when needed.
Here is an article about independent contractors and how they work.
Independent Contractor Agreement Templates
3. Service Details
A self-employed person or business entity must describe the services they will provide for a company. Likewise, a company issuing a contract may outline the services they are hiring the contractor to perform.
To comply with independent contractor tax laws, the company must provide a 1099 independent contractor form for services exceeding $600.
The 1099 form is not the same as an independent contractor agreement. The agreement is the contract that outlines things such as:
- The scope of services
- The project timeline
- The terms and conditions of the agreement
- Payment terms
Keep the description of services simple and straightforward. Avoid generalizations like “marketing services” or “web design.” Instead, explain what specific tasks each service package includes.
Here is an article with types of independent contractor services.
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4. Compensation
Describe payment terms for the contractor. For example, they may be paid upfront, receive a partial payment at the contract's start, or require a deposit for their services.
Some independent contractors work on an ongoing basis, so they receive monthly payments similar to that of an employee.
However, there are many distinctions between an independent contractor vs. employee payment rights. For example, the employer does not have to provide a freelancer or contractor benefits like health insurance. They can also choose to pay them for a service outright or hourly.
As for whether you can pay an independent contractor hourly or per diem, the answer varies by industry, service, and individual contractor. In addition, the independent contractor agreement cost will vary based on the length of the project and contractor’s rates.
The best thing for all parties involved is to be clear in the agreement about how much the contractor will be paid when they will be paid, and how they will receive payment.
Here is an article about the best ways to pay independent contractors.
5. Confidentiality
Because an independent contractor may have a working arrangement that grants them access to company data, confidentiality clauses are important.
A confidentiality agreement can protect certain parts of the project or company’s operations.
Here is an article about what you need to know about confidentiality clauses.
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6. Termination Clause
You may sometimes give yourself or the contractor the right to terminate your agreement early. In addition, other circumstances, such as a breach of contract or failed deliverables, can grant the hiring party the right to terminate their agreement.
Likewise, failure to pay or respond within a certain timeframe can give the freelancer the right to terminate the agreement.
While outside circumstances may influence the outcome of a project, there should be measures in place to protect both parties’ best interests.
You can also state that the contract will expire, e.g., naturally terminate, once the client has received work and fully paid the independent contractor.
Here is an article on termination clauses in contracts.
7. State of Governance
You should specify which state governs the terms and conditions laid out in the contract. This is especially relevant if the independent contractor and hiring party live in different states.
A state of governance can significantly impact a party’s ability to file or win a lawsuit. For example, the governing laws in your state may protect you in ways the freelancer’s state does not.
It is easy to state the governing jurisdiction. For example, you may write something such as:
“By signing this agreement, all parties agree to adhere to the laws and regulations of the United States of America, and the state of Massachusetts”
Here is an article about governing law in contracts.
8. Signatures of Parties
Contracts are not legally binding unless competent parties sign them.
Legal signatures can be signed in person or remotely through a secure electronic signature service.
An e-signature allows someone to type their name on an electronic document and submit it, rather than physically signing anything in ink.
Be sure to date all signatures, whether done in person or electronically.
Here is an article on electronic signatures and legality in the United States.
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