Contractor Agreement Templates

Workers generally fall into two categories: employees or contractors. This distinction has legal and financial consequences. For example, independent contractors are usually not covered by workers’ compensation.

The process for setting the terms and conditions for these workers also differs. Employees usually work at will, while contractors are engaged with a contractor agreement. It’s important to know how contractor agreements distinguish between these types of workers.

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.

Contractor agreements can also be open-ended. A small business might, for instance, contract with an outside accountant to provide accounting and tax services each month at an agreed hourly rate.

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.

You should also consider whether your situation requires any additional terms to address specific needs. For example, you may need a non-disclosure clause for independent contractors with access to confidential information.

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.

This distinction plays out in several key areas. For one, the IRS considers independent contractors to be self-employed. The companies that pay them are not required to withhold taxes, so the independent contractor must track and pay their taxes.

Independent contractors are not protected by the workers’ compensation insurance carried by the companies that pay them, either. This can be a crucial consideration for a business that has to create a construction subcontractor agreement, for instance, because subcontractors are usually not covered by the general contractor’s policy.

On the other hand, employers of independent contractors are usually not protected by the traditional immunity against worker lawsuits. This means a company may be exposed to personal injury lawsuits if its contractors are injured due to the company’s negligence.

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. In states like North Carolina, for example, a non-compete is enforceable only if it is in writing and signed by the person agreeing not to compete.

If the contractor is a minor, make sure you understand your state’s contract laws on legal capacity. These contracts might arise if you hire someone under 18 to act in a movie or play.

In some states, contracts with minors are void. This means a court will treat the contract as if it never existed. In other states, these agreements are voidable by either party without following their termination clauses. You can overcome this problem in most states by having the minor’s parent or legal guardian sign the agreement on the minor’s behalf.

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.