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What Is an Independent Contractor Agreement?

First, let's begin to define what an independent contractor is. An independent contractor is "a person or entity contracted to provide services to another entity as a nonemployee." In simple terms, an independent contractor is also a freelancer. Then this results in paying their own Social Security and medical taxes. An independent contractor can be a vendor, freelance consultant, or someone who pretty much works at home but being paid. Their difference with employees though is that they simply do not receive the same benefits employees do.

How to Write an Independent Contractor Agreement

Since none of us want to spend so much money just to ensure our project would be a success, we prefer freelancers, right? In which case, we must make a basic agreement comprehensive. Here are the things you need to include in the agreement to clearly set proper expectations with your contractor.

1. The Nature of Work

First, make sure both the contractor and the client know each of their roles and responsibilities to each other; it has to be detailed and clearly understandable. This should spell out the kind of work that the contractor will be doing in the production. In addition, he should also be aware of the schedule and the payment amount and terms. In terms of labor as far as the contractor is concerned, he/she should be informed about what he will be providing; when, where, and how will he do so.

2. Has a Clear Status

It has to be clearly spelled out in the simple agreement that the worker is clearly a freelancer and not an employee. In case of being sued in court because of tax avoidance (perhaps)—as per mandated for employees—at least it was legally and clearly stated in the agreement document that the worker is a freelancer; which means, you as the client have no responsibility for such taxes.

3. Who Pays Taxes

As mentioned, a contractor is different from an employee for which he does not receive the same benefits an employee receives. Specifically, a contractor will pay for his own income taxes, sales taxes, Social Security, and Medicare taxes as a self-employed individual. In which case, it should also be spelled out that the contractor does not receive a pension or retirement benefits, health insurance, vacation pay, sick pay, holiday pay, or other fringe benefits typically provided by an employer.

4. Insurance Coverage

The contract should also clear it out that the company or client will not provide liability insurance for the contractor and that he is not covered by the company's liability insurance policy. This will also be beneficial for you as the client especially that this prevents or protects your company from the danger of damaged property or injury that the contractor may cause.

5. Termination of Contract

Since you have made a contract with a freelancer, it should be clearly spelled out in the basic agreement that the company can terminate the contract without further notice. As mentioned, this can also be beneficial especially when your contractor has caused damage to your company without needing to converse with the contractor. In such a case, whatever you said might just be used against you by the contractor.