1. Sufficient Proof of Independent Contractor Status
2. Valid Independent Contractor Agreement
3. Behavioral Control
4. Financial Control
5. Relationship of the Parties

An independent contractor agreement form Colorado serves as a template when an individual or Colorado-based organization intends to hire an independent contractor.

The independent contractor agreement details the work agreement between the independent contractor and the client. The difference between an independent contractor and an employee becomes critical when considering issues such as wage and hour law, workers' compensation coverage, and pension eligibility.

Although federal law helps to resolve some of the above issues, most are addressed by state law, especially in areas like state wage and hour requirements, unemployment tax liability, etc.

Sufficient Proof of Independent Contractor Status

Until sufficient proof is delivered to the Department of Labor and Employment that individuals are free from direction and control of how to perform a certain service, these individuals are presumed to be employees under Colorado Law, regardless of whether they meet the minimum common law requirements for employees or not. The proof must show that the individuals are engaged in independent trade, profession, business, or an occupation that is connected to the service being performed.

As such, the state of Colorado requires organizations to pay independent contractors the same way they do employees, along with other attendant benefits, until they can prove otherwise. This means that they also have to pay employment tax ranging from 7.65 to 15 percent and withhold employee taxes.

A signed independent contractor agreement that meets every legal requirement is sufficient evidence to prove the status of an independent contractor. The contract alone is not a guarantee against a government audit and/or claims made by a worker. However, an independent contractor agreement shifts the burden of proving the work relationship to the auditor or worker.

Valid Independent Contractor Agreement

Under Colorado law, an independent contractor agreement must obey certain rules to be considered valid.

An independent contractor agreement must contain a disclosure that the independent contractor is not entitled to and cannot claim unemployment insurance benefits, unless this coverage is provided by the contractor or some other entity. The disclosure must also state that the contractor is obliged to pay state and federal income tax on money earned as a result of the contractual relationship. These disclosures must be printed in any of the following types:

  • In type larger than that of other provisions.
  • In bold-faced type.
  • In underlined type.

In addition, both parties must agree to certain clauses:

  • Organizations are not allowed to combine business operations with the contractor's business operations but must keep operations as separate and distinct.
  • Organizations do not pay the contractor personally but make out checks to the contractor's business name.
  • Organizations do not determine the time of performance though they may establish a range of work hours or completion schedule which is agreeable to the contractor.
  • Organizations can only provide minimal training to their independent contractors. Although they may supply equipment and materials, organizations may not provide tools and benefits to the contractor.
  • Organizations cannot end the project prematurely unless the contractor violates the contract's terms or fails to produce results that match the contract's specifications/expectations.
  • Organizations do not pay salaries or hourly rates to contractors. They pay a contract/project rate or fixed compensation.
  • Organizations do not establish quality requirements or standards for the contractor; however, they can provide specifications and plans detailing how the work is to be carried out. The organizations cannot instruct the contractor on how to perform the work and cannot oversee the actual work.
  • Organizations do not require the independent contractor to work exclusively for them; however, the contractor may choose to work exclusively for a finite period of time which should be indicated in the contract.

When determining whether a worker is an employee or an independent contractor, courts usually look into the following:

Behavioral Control

Who determines where services or supplies are purchased? Who determines the assistants to hire? Who determines the equipment or tools to use? Who determines where, when, and how often the work is done?

Financial Control

Will the worker be reimbursed for expenses? How much has the worker invested in the project? Is there an opportunity for profit and loss in the contract?

Relationship of the Parties

Does the worker receive benefits such as paid leave, pension, or insurance?

If you need help with an independent contractor agreement, you can post your legal need on the UpCounsel marketplace. UpCounsel accepts only the top 5 percent of lawyers on its site. Lawyers on UpCounsel come from prestigious law schools like Yale Law and Harvard Law and usually have 14 years of legal experience, including work on behalf of or with companies like Airbnb, Menlo Ventures, and Google.