Contractor Contracts: Everything You Need to Know
A contractor contract is a written document that details the agreement between the client and the contractor. 4 min read
A contractor contract is a written document that details the agreement between the client and the contractor. It reflects the services that the contractor will provide, how long the work should take, the compensation involved, and other specifics like non-disclosure terms, prohibitions against solicitations, and how disputes are to be resolved if they arise. Contractor contracts don't have to have a lot of legal terminology. In fact, they can be handwritten and still be binding.
A Contract by Any Other Name
Contractor contracts are sometimes called by other titles, but all govern the relationship between a specific type of contractor and the client or customer. You may see them referred to as:
- Independent contractor agreements.
- Freelance contracts.
- Consultant agreements.
- General contractor agreements.
- Subcontractor agreements.
- Consulting agreements.
- Service agreements.
Contractor or Employee?
Contractors and employees are vastly different under the law and in practice. It's important to classify workers correctly to maintain compliance with employment and tax laws.
- Contractors are usually self-employed.
- Contractors provide a good or service to a client or customer for an agreed upon fee as opposed to an employee who works for wages set by the employer.
- Contractors can have multiple clients, do their own billing and invoicing, and see profits and losses from their efforts.
- Contractors may have employees of their own, and they may enter into agreements with other subcontractors to get the work done.
- Contractors work and get paid only according to the terms of their agreement. Employees do work according to a job description set forth by the employer.
- Contractors receive no employment benefits from their clients. Employees, on the other hand, may receive health insurance, retirement plans, paid time off, and other perks.
- Employers pay some payroll taxes on their employees, while contractors handle their own taxes.
- While some employees sign an Employment Contract that lays out the terms of employment, the content of those agreements is very different than a contractor contract.
- Employees are usually trained in-house and have periodic performance evaluations.
- Contractors work independently to accomplish the job they were hired to do. The client or customer cannot control the method in which the job gets done as long as the end result is the one agreed upon. Compare this to an employer/employee relationship where the employer controls the way the work is accomplished and the location where it takes place.
- Some examples of contractors are construction teams who do work on your home or business, medical care providers, and accountants who keep the books for multiple organizations. Examples of employees would be receptionists, cashiers, and assembly line workers in a factory.
Why Do I Need a Contractor Contract?
Having a contractor contract in place protects the person or business receiving the goods or services, but it also protects the party doing the work. If you are a contractor, freelancer, or a consultant, you want to have a good contractor contract to share with your client. If you are an individual or business who is hiring a contractor, you may want to develop your own contractor contract to govern the job.
Contractor contracts are especially important if the scope of work gives the contractor access to trade secrets, confidential information, or other sensitive data. The requirement of confidentiality, along with the consequences for breaching it, should be clear in the contractor contract to keep the consultant from sharing such information. Non-compete clauses and non-solicitation agreements can be included to keep a freelancer from poaching business from a client. These details can also prevent some types of conflicts of interest.
Some Tips on Developing a Contractor Contract
- Make sure that your contractor contract is as specific and detailed as you can make it. The customer and the contractor may need to refer to it many times during the course of the project, so it's important to be thorough.
- If you're hiring a contractor who has his or her own contract document, read it carefully, keeping in mind that it was designed for the contractor. It may still be a good starting point, but you may want to negotiate some of the details.
- At a minimum, the contract should include:
- Contact information for all parties.
- A description of the project.
- The expected time to completion.
- Payment terms.
- Any local permits that must be secured.
- Penalties if the project goes over budget or past deadline.
- How requests for amendments or additions are to be handled.
- Expected expenses.
- Materials to be purchased.
- Any requirements that the contractor hold a specific license, be bonded, or provide insurance coverage.
- Termination procedures.
- Any other protections for either party.
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