By UpCounsel Employment Attorney Tiffany Donaldson

Retaining independent contractors is an important step in growing your business. If you are looking into retaining independent contractors, then that means you likely have more work than you can handle, or you need to work with people with other skill sets to deliver a final product to your customer.

When retaining independent contractors, avoid making the following mistakes:

Mistake #1: Doing Business Without a Contract

The biggest mistake that I see companies make is retaining independent contractors without a formal contract. Although it would be nice if a handshake were all that was needed, an agreement with formal terms is required for your protection.

Mistake #2: Failing to Define the Details

The second mistake that companies make when drafting an independent contractor agreement is failing to specify what exact work needs to be performed by when. Specificity in contracts is what makes them useful and easier to enforce.

Mistake #3: Failing to Plan for Change

A change in project scope or time-table should be planned for. Often the original request changes, and the contract needs to have provisions for changes to the project scope.

Mistake #4: Independent Contractor Performing as Employee

A worker is not an “independent contractor” because he/she signs an independent contractor agreement. The IRS defines the parameters of who it considers an employee. Labeling an employee as an independent contractor may result in fines and back taxes to the employer. The IRS uses an analysis of the worker’s role, including whether the worker is subject to the employer’s dominion and control, whether the worker works for other clients, and whether the worker has its own entity and offices.

Mistake #5: Data Policy

Many companies retaining independent contractors do not address their data policies with them. Independent contractors are likely coming into contact with your clients’ data, and the IC Agreement is the place to define the data policies that shall govern the relationship.

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About the author

Tiffany Donaldson

Tiffany Donaldson

Tiffany has experience advising a wide range of companies on formation, contracts, minutes, trademark, branding, employment, non-disclosure and non-compete agreements, licensing, and franchise related issues.
She previously worked for commercial and bankruptcy law firms, as an e-discovery attorney, and has clerked for the Maryland Court of Special Appeals.

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