Independent Contractor Contract Template (And How To Write One)

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Hiring an independent contractor allows a business or company some flexibility when it comes to staffing. Since independent contractors are not full-time employees of the company, it’s important to create an independent contractor agreement stating the guidelines for the work.

In this article, we will go over what an independent contractor agreement is, how to create one, as well as provide a template to help you create your own agreement.

Key Takeaways:

• A contractor agreement should include the time frame and deadlines, services to be completed, and any compensation to be paid.

• An independent contractor is a self-employed person and is not an employee of the company.

• A company does not withhold income tax, and it is the responsibility of the independent contractor to withhold it themselves.

What Is an Independent Contractor Agreement?

An independent contractor agreement is a contract between a freelancer or contractor and a company, and it outlines the guidelines and specifics of their business together. This is a legal contract that includes information on what work is to be done, what the compensation is, and if and when the deadlines for the project are.

This document is important because it states why the person is being hired, and it clearly states that they are not an employee for legal and tax reasons. Other names for a contractor agreement can be:

• Subcontractor agreement

• Freelance contractor agreement

• Consulting services agreement

• Freelance contract

How to Create an Independent Contractor Agreement

1. Parties. The first thing that should be done is to list all the parties, such as independent contractors, clients, or hiring companies. You should also include all the contact information for all of the parties.

2. Time frame. The deadlines for when the project or work must be done need to be included. Depending on the work, there may be multiple deadlines in the contract.

3. Services. This will include the contract details and any specifics of the work that the contractor must complete.

4. Compensation details. State how the independent contractor will be compensated for the work that is to be completed. This could be an hourly wage, weekly wage, or total compensation to be paid when the project is completed.

5. Agreement Terms. The agreement terms will include any clauses on termination of the contract, reimbursement of expenses, intellectual property, or any confidentiality agreements.

6. Signatures. To finish off the contract, be sure that both parties sign and date the contract.

Contractor Contract Template

What Is an Independent Contractor?

An independent contractor is a self-employed individual or a business entity that provides a service to a customer in exchange for compensation. The compensation will be based on a verbal or written contract with the client or customer.

People such as doctors, dentists, lawyers, or accountants who are in an independent trade, business, or profession in which they offer their services to the general public are generally considered independent contractors.

The general rule is that an individual is an independent contractor if the payer or customer has the right to control the result of the work or project and not the process of how it will be done. You are not an independent contractor if the services that you perform can be controlled by an employer.

The Difference Between an Independent Contractor and an Employee

The difference between an independent contractor and an employee is how the person is compensated and if the company withholds any income tax. The main differences in the company’s relationship with an employee and an independent contractor are:

Employee:

• Employment laws. An employee will be covered by federal and state employment and labor laws.

• Hiring practice. A potential employee will complete an employment application to a company’s human resources department. After an interview process, the employee will accept a position, and the employer will ask for additional information such as date of birth and citizenship status.

• Tax documents. The employee will provide their name, address, Social Security number, tax filing status, and number of expectations on a W-4 tax form.

• Payer’s tax reporting requirements. Employees must report all money that is paid to them during the year on a W-2 tax form.

• Reporting to other agencies. Resorts for state and federal Unemployment Insurance.

• Value of work or contract. Employees will earn an hourly wage or a yearly salary.

• When paid. The employee’s pay must remain the same unless it is formally changed. The pay period could range from weekly to monthly. Federal and state laws require that an employee is to be paid on the normal payday or earlier if the paycheck is not negotiable on the normal payday, such as on holiday.

Independent contractor:

• Employment laws. Contractors are not covered by labor and employment laws.

• Hiring practice. A potential contractor will interact with the person or department that wants the service completed. The potential contractor might complete a proposal for this part. The contractor will enter into a contract with a Statement of Work with the lethal section of the business or company.

• Tax documents. A contractor will provide their name, address, Taxpayer Identification Number, and certification about backup withholding on a W-9 tax form.

• Payer’s tax reporting requirements. Contractors must report payments of $600 or more paid in a calendar year on a 1099 tax form.

• Reporting to other agencies. There is no reporting to other agencies for contractors.

• Value of work or contract. Contractors can have a contract for a total amount. The contracts could also be for an hourly, daily, or weekly amount that ends on a specific date.

• When paid. The accounts payable pays the contractor after they receive an invoice. Contractors are not paid by a payroll system.

Independent Contractor FAQ

1. Who can use an independent contractor agreement?

   Independent contractor agreements can be used for contractors, freelancers, and consultants who want a written agreement with their clients. This type of agreement is also good for any customer or client who wants to outline the service arrangement in a written contract.

2. When should you use an independent contractor agreement?

   An independent contractor agreement should be used if you are an independent contractor or are a client or company hiring an independent contractor. The person who draws up the contract will depend on who is hiring for work.

   For example, when a company hires an independent contractor, they will write up the contract and provide it to the independent contractor to look over and agree to the terms.

3. What are the benefits of using an independent contractor agreement?

   The benefits of using an independent contractor agreement include protecting the company’s business and interests, and it offers liability protections. Using this kind of agreement also helps ensure that the freelancer maintains some confidentiality, and it helps ensure that they are paid the predetermined compensation rate.

Final Thoughts

Hiring a contractor for your business can be beneficial in many ways. It’s important that you hire them correctly and create a contract to help your business as well as the contractor from anything that may happen.

References

1. IRS – Independent Contractor Defined

2. Office of Child Support Enforcement – What’s the Difference Between an Independent Contractor and an Employee?

3. SHRM – Independent Contractor Agreement

Author

Taylor Berman

Taylor is a freelance writer from Pennsylvania. Taylor got into writing because she enjoys writing articles that help people and loves creating stories that inspire. She earned a bachelor's degree in journalism and public relations with an interest in communications media from Indiana University of Pennsylvania.