Independent Contractor Agreement Template

Independent contractors are usually professionals or experts hired for specific projects rather than open-ended employment. A key distinction between at-will employment vs. contractor employment is the existence of an agreement. This independent contractor agreement defines the relationship between the contractor and the customer.

What Is an Independent Contractor Agreement?

An independent contractor agreement is used when you need to create an employment contract that sets out the terms and conditions for the contractor’s work, including compensation and termination.

Why You Need One

An independent contractor agreement is essential to hiring a contractor. Every state except Montana presumes that workers are at-will employees unless the employer proves the existence of an oral or written contract. That means you need this contract to create an independent contractor relationship.

When to Use an Agreement

You will use this agreement any time you hire a contractor. The legal test for identifying an independent contractor depends on your jurisdiction. However, about half of the states apply the ABC test by examining these factors:

1. Absence of control of the worker by the employer is present.
2. Business of the worker is outside the employer’s normal business.
3. The worker customarily engages in an independent business or occupation.

A familiar scenario occurs when a homeowner or landlord hires a building contractor to construct or renovate a structure. The builder is free from the person’s control in how they perform their work, and the builder’s business is outside of the person’s normal business. Builders customarily operate independently from homeowners or landlords.

But this is just one example. Attorneys, accountants, graphic designers and other freelancers often work as independent contractors. Similarly, service providers, such as third-party office or house cleaners, usually create cleaning subcontractor agreements for their services.

Key Sections to Include

Contractor agreements will typically identify both parties and specifically state that the worker is hired as an independent contractor. It will detail the work to be performed and the compensation promised.

The terms should describe the deadlines for work and the payment terms. Finally, it will usually describe the grounds for termination. Both parties will sign and date the agreement.

Avoiding Worker Misclassification

Worker misclassification occurs when employers incorrectly treat employees as independent contractors. This may happen inadvertently when employers misunderstand the difference between employees and independent contractors.

Sometimes, though, employers deliberately misclassify to avoid paying payroll taxes, workers’ comp premiums and other benefits. To avoid the penalties of misclassification, apply your jurisdiction’s test for independent contractor status, such as the ABC test or your state’s variation.

Common Mistakes to Avoid

Perhaps the biggest mistake to avoid is creating an independent contractor agreement for a worker who is actually an employee. You can avoid this pitfall by applying your state’s classification test.

Another mistake is to write an independent contractor agreement when you need to create an at-will employment agreement. Avoid this mistake by writing termination provisions into the contractor agreement and ensuring control remains with the contractor.

Need Help Creating Your Independent Contractor Agreement?

Creating the right independent contractor agreement can protect you from being responsible for withholding taxes and paying benefits. Find the right contract for your needs from ConsumerShield’s forms and guides.