A Brief Introduction of Independent Contractor Agreement
An independent contractor agreement is a contract document between two parties for the accomplishment of a specific project. One of the most important distinctions that need to be made is that this contract is not for employees. It is drawn only between a company that wants a specific project done and a freelance or an independent contractor. Independent contract agreements are also called Freelance Contract agreements because working as an independent contractor usually means working as a freelancer. Since he is not an employee, the company is not obliged to pay taxes.
So, understanding what is an independent contractor agreement and how it is different from contracts with regular employees is key to drafting an effective contract.
Independent contractor agreements protect business needs by outlining the exact nature of work that needs to be accomplished and the payment. Because of such a contract, the liability is also defined clearly for both the parties. Contract copies also help in identifying in protecting oneself against the revenue and tax services.
Who Takes the Independent Contractor Agreement?
This agreement is entered into between a company that has a specific project requirement and wants to get that work done by a professional, and a freelance professional skilled in executing that project. Because the freelancer is not part of the company’s employees, there is a need for creating this contract between both parties. In this case, a freelancer could be a group of contractors who specialize in providing the required services. The company that takes the agreement could also be an individual or a group of individuals.
Purpose of an Independent Contractor Agreement
The purpose of the agreement is to agree on a specific task to be performed. A company, when it wants any work done, will hire the contractor for that purpose. This contract helps in outlining the rights and responsibilities of the parties and ensures that contractual performance is enforced. This ensures that liability and risk are limited, while the benefits from the contract are accrued.
Contents of an Independent Contractor Agreement
A standard independent contractor agreement template contains the following terms
- Details of both the parties to the contract including names, addresses, and contact details
- Definition of terms in the contract regarding contractual obligations
- Details of the work that is required to be done
- Description of the nature of services that is required to be done
- Rights and responsibilities of both the parties
- Tenure of the project and the event or activity that concludes the project
- Payment details to the freelancers including any deposits required to be made by the freelancers, and retainer monies required to be held by the company
- Key milestones or timeframe of the service or project
- Working hours and liability of the employer to enforce them
- The obligation of the company towards third parties for any incidental damages
- Delivery of the project and what constitutes completion of the project
- The extent of liability that each party is required to bear
- Liability of damages to the property caused as a result of the project, and who pays for the damages
- Details of the equipment and technology required for executing the project and the liability of providing such equipment by the company and the freelancer
- Indemnification clauses for any losses caused by the freelancer to the company for any breach of contract
- Protection of copyrighted and other confidential information and the NDA clauses that the freelancer is required to sign at the time of the contract
- Termination of the contract along with the details of the legal recourse available to both the parties and any other form of conflict resolution
How to Draft an Independent Contractor Agreement?
When drafting this agreement, some of the things that need to be kept in mind are:
- The qualifications of the freelancer and the vetting process that needs to be done before hiring the contractor
- The specific nature of the work that is required to be done, and any compulsory timelines to be stuck to because of the nature of the work
- The details of the payment to be made and the liability of taxation as a principal employer.
- The extent to which the liability or risk of loss would be shared by both the parties and the way the parties would bear any damages.
- Any details of contractual termination and the events that cause it
- The responsibility of the freelancer to keep confidential information secure without divulging it to anyone — signing an NDA clause
- What events constitute the completion and performance of the project and how it would be delivered
- The extent to which the freelancer has access to the project
The negotiation strategy in this agreement would be regarding the payment amount, terms and schedules, the extent of liability and damages, and the responsibilities of each party after termination, including indemnification clauses. Parties, when negotiating, have an estimated idea of the risk involved, and the efforts involved to mitigate that risk of damage. So, any contractual obligations would be determined on the basis of their expected risk and the commensurate remuneration
Benefits and Drawbacks of the Independent Contract Agreement
Some of the benefits of this contract are
- The contract outlines the scope of services clearly, so each party understands its obligations
- The contract acts as a proof of performance and terms of the agreement in a court of law
- The statutory obligations on the company for compliance are limited, so negotiation strategies can be more lenient.
- Since the term is for a fixed period, termination is possible without legal prejudice in case the standard of the services isn’t satisfactory
Drawbacks of this contract are:
- There is no job security for the freelancer as the employment is based temporarily for the duration of the contract
- Payment might not arrive on time compared to regular employees
- There might be differences in the calculation of completion percentages which might lead to the additional workload for the freelancer
- There are higher chances of damage which means insurance costs would also drive up
What Happens in the Case of a Violation?
In case of a violation of the contract, the parties may agree to immediately terminate the contract without prejudice. If there are any payments pending, the parties might file a suit in a court of law for the recovery of monies. If there is any damage, the injured party may approach a court of law for specific performance or an injunction. The court might even award them compensatory damages for the loss suffered by them.
This agreement is useful when the companies need performance of a specific job where there is no expectation of long term requirements for the same job. This ensures that there is no long term commitment by the company. The freelancer is also free to pursue better opportunities.
Sample for Independent Contractor Agreement
A sample of the agreement can be downloaded from below.