What are common pitfalls in contractor agreements?

I am a small business owner looking to hire an independent contractor to help with some of my workload. I am concerned about entering into an agreement with the contractor and would like to know more about common pitfalls in contractor agreements so that I can ensure I am entering into a fair and equitable arrangement.

Peter R.

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Business Lawyer

Licensed in North Carolina

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There are several potential pitfalls that can be mitigated or removed by addressing them in the contract. These include: whether the contract calls itself an independent contractor agreement but yet fails the test for an independent contractor and therefore brings in matters such as workers compensation coverage (depending on number of employees), liability for contractors acts or omissions, unemployment tax, tax withholding v 1099 and several others. These can be eliminated via proper drafting.

N'kia N.

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Business Lawyer

Licensed in North Carolina

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In North Carolina, there are numerous potential pitfalls for independent contractor agreements. A few general pitfalls include: 1. Classification: An independent contractor agreement should properly establish that the relationship is intended to be an independent contractor relationship (not an employment relationship). The agreement should include terms and conditions that make the intended nature of the relationship absolutely clear. 2. Compensation: An independent contractor agreement should properly address the contractor's compensation. The agreement should not include references to terms typically reserved for employment relationships (like "salary" or "exempt/non-exempt"). 3. Control: An independent contractor agreement should demonstrate that the hiring party will not control the contractor like it would an employee. The agreement should not include terms and conditions that unlawfully or unnecessarily limit the contractor's rights (like the right to provides services to other clients to generate independent income). 4. Criteria/Qualifications: An independent contractor agreement should establish that the contractor is qualified to provide the services "independently" i.e. without the hiring party providing training or supervision. The agreement should not include terms and conditions that demonstrate an improper degree of control (like probation, performance reviews, or discipline). There are also pitfalls that are based on such factors as the industry or nature of the hiring party's business, the nature of the services the contractor will be performing, or the nature of the relationship between the parties. To be fair and equitable, an independent contractor agreement must respect the various laws governing independent contractor relationships. For example, a worker should not be required to accept a role as an "independent contractor" if the hiring party intends to control the worker like an employee. A North Carolina attorney who is knowledgeable of independent contractor relationships can assist with an independent contractor agreement. Consult with a knowledgeable attorney to help ensure you avoid some common pitfalls in independent contractor agreements.