Tips for agreements with independent contractors

On Behalf of | Sep 29, 2023 | Business Law

When you have business needs that can’t be managed in-house, independent contractors can be a huge asset to your overall strategy for success. Not only does your small business gain access to people with unique skill sets, but you can often supplement your workforce for less than what it would cost to add new employees.

All that being said, however, you still need to make sure that your independent contractor agreements are clear and correct so that you don’t end up in any unnecessary (and deeply unpleasant) legal disputes. With that in mind, here are some key things to cover once you get started.

Clearly define the relationship

Incorrect classification of an employee as an independent contractor can get you into serious trouble with the Internal Revenue Service and create issues with your workers’ compensation insurance – so you want no ambiguities here.

Make sure that your agreement clearly defines the worker as an independent contractor and not an employee. It can also be wise to specify that the contractor is responsible for their own taxes so that there is no confusion. You also need to define what services or deliverables you expect to receive in exchange for payment. Be clear that the contractor is free to go about their business in their own way, so long as they provide what they’re being paid to provide within the expected timeframe.

Be very detailed about the financials

Generally speaking, independent contractors are expected to provide their own equipment, supplies, internet access and so on – while employees are not. Including this in your agreement not only eliminates any possibility of a dispute over the issue later, but also helps show that the worker is properly classified. You should also include language that makes it clear that, since they are not employees, the worker will have no access to all of the typical employee benefits, such as medical coverage, workers’ compensation or overtime.

Finally, the agreement should spell out exactly how the contractor will be paid, and when. If they’re paid by the project or piece (which isn’t uncommon), make that clear, and address any conditions that must be met (such as meeting project specifications) before payment will be disbursed.

Drafting effective contracts for your outsourced workers can be difficult to do on your own. Seeking experienced legal guidance can make sure that you don’t make any critical mistakes.