What Is A Contractor Agreement? (2026)

Understanding the Contractor Agreement

So what is a contractor agreement exactly? A contractor agreement is simply a written or oral agreement covering the worker’s employment. It typically explains what the contractor will do and how the parties will know when the contractor has completed their work.

Key Terms to Include in a Contractor Agreement

All contracts must have mutual assent and consideration. This means both parties must agree to the mutual promises contained in the agreement. All parties should also understand these promises fully.

Some common terms contained in these promises include:

• Pay
• Project description
• Completion deadlines, if any
• Grounds for early termination

Proof of mutual assent is normally established by both parties’ signatures on the document.

Contractor vs. Employee: Key Differences

Perhaps the most important difference between contractors and employees is that employees work for the employer’s business, while contractors are in business for themselves. Some tests for categorizing contractors and employees include looking at who has control over how and when work is performed and whether the work is permanent or project-based.

How to Draft a Contractor Agreement

Drafting a contractor agreement can be complicated, especially if you do not have legal experience writing contracts. What is a contractor agreement’s drafting process like? Typically, you will use one or more templates so your agreement includes all the necessary terms for a valid and enforceable contract.

Thus, the drafting of a contractor agreement might include these steps:

• Negotiate the terms of the employment.
• Create an independent contractor agreement to incorporate the terms.
• Create a contractor unilateral NDA to protect your company’s information.

Depending on your state, you might also be able to use a contractor non-compete agreement. However, the validity of these agreements varies from state to state.

Risks of Not Having a Contractor Agreement

What is a contractor agreement’s greatest advantage? A contractor agreement’s main benefit is certainty. Without a contractor agreement, you face two primary risks. First, the worker may be classified as an employee by the government, requiring you to withhold taxes and provide workers’ compensation insurance.

Second, your business might not get the work it expected. For example, without an agreement, you may not have proof of the work you paid for, or when you expected it to be completed.

Create the Right Contractor Agreement to Protect Your Interests

Businesses and individuals hiring contractors need the security of knowing that their contractors will perform the requested work. Creating the right contractor agreement can provide certainty to both the employer and the contractor about the terms and conditions of the employment.