Contracts For Contractors: Everything You Need to Know
Contracts for contractors spell out the terms of a working arrangement between independent workers and their clients. 3 min read
Contracts for contractors spell out the terms of a working arrangement between independent workers and their clients. These contracts include the services being provided, the length and term of the projects, payment details, dispute resolution clauses, and confidentiality notices.
Independent Contractor Agreement
An independent contractor is also known as a freelancer or a consultant. This is an individual who is typically self-employed and provides a service or product to a client in exchange for money. People use independent contractor agreements if they are completing or receiving services from an independent contractor.
An independent contractor agreement is also known as a:
- Consultant agreement
- Freelance contract
- Subcontractor agreement
- General contractor agreement
- Consulting services agreement
Because confidentiality is a common concern for clients who often entrust contractors with private information, having a contract in place will prevent a freelancer from giving away sensitive information. The contract can also include terms about noncompetition and nonsolicitation in case conflicts of interest arise or there's a risk of competition.
Contractors vs. Employees
An independent contractor agreement is for freelance individuals, not employees. Legally, there is a big difference between an employee and a contractor. As such, it's important to only use independent contractor agreements for contract workers. Contractors have more independence and flexibility over how they complete their work, but businesses also have fewer responsibilities than if they hired a full-time employee.
Unlike contractors, hired employees:
- Receive in-house training
- Might receive benefits, such as vacation time, insurance, or sick leave
- Might undergo employment reviews
- Have their wages controlled by the employer
- Are controlled by the employer in how and when they work
- Have their job description created for them by the employer
When hiring an employee, most businesses have them sign an employment agreement and offer. This agreement states the new employee's role in the business, the payment offer, and if there's a probationary period involved. When classifying a worker, a business might file taxes accordingly and make sure the employer complies with employment laws. Employers must also pay a portion of payroll taxes on their employees.
By contrast, independent contractors:
- File their own personal taxes
- Work on a contractual basis
- Don't have employment benefits
- Can work with multiple clients
- Invoice their own customers
- Have personal investments in contracting with businesses
- Have more control over the work and services being offered
Essentially, contractors have more autonomy in their jobs. Professionals such as accountants, dentists, and handymen are typically contractors, and while you have control over the outcome of the job they complete, you have no say in how the job will be done up to that point.
Businesses interested in hiring a contractor should use an independent contractor agreement. If possible, state the terms of the job, an estimated amount of time the project will take, and the payment structure.
What to Include in Contracts for Contractors
There are some key elements to include in an independent contractor agreement. As a legal contract, the agreement stipulates both parties' obligations and responsibilities. A contractor's contract defines a unique working relationship that differs from an employment agreement, so it must include contractor rates, project deadlines, compensation, and expectations. Contractors should enter into these agreements regardless of whether they are completing short-term or long-term projects.
When drafting your contract, include these essential elements:
- Job description
- This description might be included in the body of the contract or as an attachment, but it must describe the client's expectations for hiring the contractor
- The contractor has the right to control how to perform the work, even though the work must align with the client's procedures and guidelines
- The description might contain phrases affirming the contractor's rights to perform the job, including the right to hire or supervise their own employees
- This part of the contract should specify that the finished project must be approved by the client
- Compensation and payment terms
- The agreement outlines the compensation to which both parties have previously agreed
- The contractor is required to complete the job to receive compensation
- Most contractors submit invoices to receive the agreed-upon compensation
- Legal requirements
- The contract should include a clause confirming both the contractor and client have complied with federal, local, and state laws
- This section implies all parties have obtained the required permits, business licenses, and certifications for the project
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