Small Business News
Both sides of an independent contractor relationship benefit from a well-crafted written agreement. The agreement should clearly define the roles and responsibilities of your professional relationship. Setting expectations in writing may help clear up confusion over worker classification, payments, deadlines, taxes and more. In addition, the agreement may help you avoid costly disputes, protect you from liability and keep you out of court. Your B2B Team is available to help you find answers to these questions.
- Understand worker classification.Before you hire an independent contractor make sure the proposed work to be completed and contract terms do not classify them as an employee. Incorrect classification may have significant tax implications for your business. Just because you define a worker as an independent contractor in your agreement does not mean the IRS will agree. You can review the IRS guidelines here. Once you are confident that the worker is an independent contractor, clearly define them as such in your agreement. Independent contractors should also understand these guidelines. If you should be classified as an employee, you may be entitled to benefits and your tax liability may change.
- Know who is responsible for what.Spell out the exact nature of the work to be completed. Define materials to be used, expenses, workspace, development, delivery and any other details of the work. Who will be the primary point person for both parties? What is the preferred method of communication? How often will you meet to review progress or finished work? Setting clear parameters will help avoid frustration and miscommunication.
- Set clear and realistic deadlines. Delays and missed deadlines are common points of contention. Clearly define important due dates and production deadlines, as well as the consequences for failing to meet them. Independent contractors should make sure they can realistically meet these deadlines prior to signing, particularly if there are financial ramifications for failing to complete work on time.
- Outline cost and payment structure. Spell out the exact cost for work to be completed and how it will be invoiced and paid. If any additional work is required that falls outside the scope of the agreement, how will it be billed? Will you require written authorization before additional work is completed or set a standard hourly rate to cover overages?
- Define tax liability. Your agreement shouldmake it clear that the independent contractor is responsible for paying their own state and federal income tax. In addition, the agreement should state that the contractor is not eligible to receive any employee benefits.
- Confirm licensing requirements and insurance liability.Confirm in the written agreement that the independent contractor has liability insurance and is fully licensed by the state and any other relevant regulatory agencies.
- Establish clear ownership of intellectual property.You must specify who owns the intellectual property created by the independent contractor under the agreement. You should also include a nondisclosure agreement, which prevents the other party from sharing information with competitors. If an independent contractor has access to customer payment data or any other sensitive personal information, you may also have them sign a confidentiality agreement. Talk with your attorney to determine the best means to protect your intellectual property and customer data.
- Define how and when the agreement terminates.Set the duration of your agreement. Will the agreement terminate after a year or once work is complete? Who can terminate the agreement prematurely and under what circumstances?