Independent Contractor Agreements

Independent Contractor Agreement

The difference between an employee and an independent contractor is often subtle, which leaves many questions unanswered as to liability, responsibilities, compensation, etc. As such, it is first important to distinguish one from the other. An employee is one who performs services for you if you can control what is done and how it is done; this is true even if you give your employee freedom of action. You must generally withhold taxes and pay benefits to an employee. An independent contractor, on the other hand, is one who follows an independent trade, business or profession, in which he offers services to the public (i.e. lawyer, strategy/ marketing consultant, contractor/ subcontractor, etc.), and for whom you generally need not withhold or pay taxes or benefits. An independent contractor will operate free from your control and is likely accountable to you only to the extent that they must complete the job for which they were hired.

You may be tempted to engage an independent contractor in an oral agreement, especially if his responsibilities are few or for a short period, so as to save the time, money and energy required to develop a separate independent contractor agreement. But executing a written agreement and clarifying the independent contractor status of your hiree will ensure that you avoid the ire of the Internal Revenue Service (IRS) and protect yourself, your business and intellectual property. At the very least, you should negotiate with the hiree a written independent contractor agreement that is like your employment agreement but also speaks to the following:

  • An unambiguous statement identifying the hiree as an independent contractor,
  • The project’s scope, components and duration, together with a detailed account of the independent contractor’s duties/ responsibilities and work schedule,
  • The compensation to be paid, The taxes to be withheld, or reference that the independent contractor is responsible himself for paying the necessary taxes to the IRS; if you delegate this obligation to the contractor, you should also include in the agreement a clause that exempts you from liability if he fails to comply with the law (i.e. the contractor must indemnify or pay you back for any damages/ back taxes you are required to pay on his behalf),
  • The circumstances under which your relationship with the independent contractor can be terminated (note: you should reserve your right to relieve the independent contractor from his duties at will, with or without cause, and speak to how the hiree may exit the contract himself if he chooses to do so), and
  • A comprehensive set of restrictive terms, including non-compete, non-solicitation, work product and confidentiality clauses, in which you require the independent contractor to pledge that for a given period after the termination of his contract with you, regardless of whether he is fired or if he quits, he will not directly or indirectly engage in any activity that competes with your business, reveal or misuse any confidential information learned from you, solicit business from your clients or prospective clients, etc.

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