Many business owners expand their businesses and workforce by hiring independent contractors. It can be a good way to simplify the hiring process. However, hiring independent contractors still require certain formality and legal paperwork. Most common is an independent contractor agreement, which is important to protect you and your business from potential liabilities.
Here are the 9 reasons to have a well-drafted agreement with your independent contractors:
The types of workers you hire can lead to different tax implications. Independent contractors may be treated differently than an employee, in terms of benefits and tax liabilities. Be sure to check with the IRS guideline that your workers can be identified as independent contractors. Once you determine that, define them as such in your agreement.
As with other contracts, the agreement between you and your independent contractors will need to lay out expectations, including the nature of the work. It’s your opportunity to specify the scope of work, the resources and expenses allowed, and delivery methods. How would you want to communicate? How often do you want to be reported on the progress? Setting out clear expectation in the independent contractor agreement can help you avoid miscommunication issues throughout the contract period.
Setting out deadlines is one of the most important points of an agreement. Once both parties agree upon a deadline, this should be recorded clearly in writing to avoid any conflict or confusion later. In certain occasions, more than one deadlines or due dates are needed and should be recorded. If there is any consequence for missing a deadline or delay in delivery, such consequence should also be spelled out clearly in the agreement.
The contractor agreement should list any expected amounts and payment method. There should be additional terms that govern any unexpected extra work or requirement and how such extra payments can be determined and approved.
Taxes and benefits
Usually, independent contractors are responsible for paying their state and federal income taxes. They are often excluded from any employee benefits. These should also be specified in the independent contractor agreement.
Liability & Licensing
Certain work requires licensing and liability insurance. To avoid potential risks and liabilities, you should confirm in the agreement that the contractor fully meets any and all of the licensing and insurance requirements required to perform the service.
Intellectual Property & Competition
In certain jobs, the contractor will produce creative works, such as artworks, designs, or written content. The independent contractor agreement, in this case, should specify who can claim ownership to such intellectual property – the contractor or the employer. In other cases, in order to complete the assignments, the contractor may require access to private business information, such as customer data or payment history. The agreement needs to have a nondisclosure term, requiring the party to keep all information confidential. Certain terms can also be put in place to prevent such information to be shared with competitors, often worded as non-competitive clauses. If you’re unsure of how to protect your data and intellectual property, talk to an attorney.
Even with the most detailed agreement upfront, there can still be conflicts and disputes arising later. You can include a term that requires disputes to be settled via mediation.
The agreement should also have a validity period. If one of the parties terminates the agreement prematurely, what are the consequences and under what circumstances would that be allowed?
Having a good independent contractor agreement can prevent confusion and misunderstanding in the process. But more importantly, the agreement can help protect businesses from potential liabilities and lawsuits. This can only be done with a well-written agreement. Contact LegalShield today to learn how you can get legal protection for less than $1 a day!