Also known as an independent contractor agreement, subcontractor agreement, freelance contract, or consulting agreement, a contractor agreement is a written agreement that binds a customer and contractor to certain work, payment, and confidentiality terms throughout the duration of a project or service.
Companies often hire independent contractors because it’s easier to end a contract than it is to fire an employee. If it’s a niche or one-time project, it could be better to just outsource the work to a temporary contractor rather than hire someone else into the company for the job.
If you’re a freelancer or you’re self-employed, you’ll want to get the hang of drafting contractor agreements to protect your time, work, and wages.
How Do I Know I Need a Contractor Agreement?
First, you need to figure out if you’re considered a contractor or an employee under your job.
If you’re a contractor, you’re either a business or a (usually self-employed) individual that performs some type of job or service on a contractual basis with clients in exchange for money.
Independent contractors are typically brought in to work with an employer for some temporary period of time to do a specific task the company can’t or didn’t want to complete with in-house employees. For example, contractors could be hired to build a company’s website, fix the electricity, construct, or renovate a building.
Contractors have more flexibility with their scheduling and don’t have to worry about answering definitively to a certain company or authority – they are essentially their own bosses and can always find other clients because they’re competing in the job market. They get more control over their work and work process.
Contractors often have temporary assignments or irregular work, will have to supply (at least the majority of) the necessary equipment, materials, and tools, can’t get unemployment or workers’ compensation payments, and they don’t get any benefits through the job (like matching social security payments, retirement plans, or medical insurance).
If you’re an employee, you’re typically on an employer’s payroll getting a steady paycheck from that person or company.
As an employee, your employer will have more of a say over where you do your job, how long you should take, and the overall process of how you get the job done – they get more control over the method of how you do your job and not just over the final results or quality.
Employees also get benefits from their employers. Employers will cover business operation costs, provide a workspace, necessary resources, and things such as paid vacation days, matching social security, retirement plans, medical, vision, or dental insurance. They’ll also withhold taxes from your paycheck.
If you’re contracting out your services as a consultant of some kind, then technically, what you want is a consulting agreement – it has the same basis as a contractor agreement, but it’s more specifically worded for consultation services.
Contractor agreements are for different types of contractors, so If you’re actually considered an employee, you’re going to want to look at an employment agreement instead.
In a way, contractor agreements are easier to terminate than employee agreements. They’re contracts to complete a specific project or do a service rather than to fulfill a role or cooperative partnership within a company. Ending the agreement wouldn’t be so much like losing your job as it would be losing a job – it’s not as high risk. You probably have other project contracts to cover for it.
Anatomy of a Contractor Agreement
There are several topics that are good to cover in your contractor agreement:
Compensation
Your payment is one of the most important things to include in a contractor agreement, as you’d expect. Be sure the contract lists what dollar amount you will be paid for a certain amount of work. Are you paid per project? Will you be paid an hourly or daily wage? Talk it over with your client and put it in writing so you can protect yourself if things go wrong and they try to back out or screw you over.
Since you’re not an employee, you won’t get any special benefits.
Contractor Responsibilities
The agreement should detail the work that’s expected from the contractor. What were you hired to do? Build a bridge? Run a social media campaign? Fix a toilet?
List out all the things you’re going to be responsible for and accomplish by the end of the contract. What services are you providing? What projects will you complete? What will you produce as the outcome of the contractor agreement?
At the end, there’s usually a line that allows for a little work flexibility if the client wants to ask you for a little more, but not enough extra that the contract has to be renegotiated. It’ll say something like, “and any other services the contractor and client agree upon.”
Ownership
This is a big one for contractors: who owns the intellectual property created in the contractual partnership once the work is done and the contract has ended?
The work created from the contract is considered “work for hire” under U.S. copyright law, which means it initially belongs to the commissioner or the client who hired the contractor.
However, the agreement can be arranged differently between client and contractor. For instance, the contractor may be allowed to own the intellectual property while also giving the company license to use it. It all depends on what you work out with your client.
Confidentiality
This is the part of the agreement where the company protects its business and trade secrets from its competition.
A non-disclosure agreement (NDA) is about confidentiality. A company might include one to prevent you from spreading company secrets. Your client also might include a non-competition or non-solicitation clause to restrict you from working for the competition or from stealing the company’s clients.
Duration and Termination
Contractor agreements usually only last for a specified amount of time – however long they’re needed or however long it takes to complete the project(s).
There could be a specific deadline mentioned in the contract, or it could go until the service or project is completed. It depends on the nature of the work and what the client and contractor agree upon.
The agreement should also mention what reasons there could be for contract termination and what happens if the contract is terminated early.
Don’t Forget to Save for Taxes!
Taxes can get a little tricky as an independent contractor.
Since you don’t have an employer withholding money from your paycheck for taxes and benefits and you definitely still have to pay taxes, you have to file extra paperwork to pay up.
Instead of a W-2 from an employer, you’ll get a 1099-MISC from each client you work with that shows how much you earned. You won’t get the form if you made under $600 from that client, but you have to remember to report that number on your taxes in the total.
In addition to the 1099s, you’ll have to fill out a section on your 1040 form called a Schedule C (or C-EZ, the simplified version) – it shows the income you earned from contracting minus expenses. You’ll also have to pay self-employment taxes (Schedule SE of a 1040) for things like Medicare and social security that weren’t already taken out of your paycheck.
Never Fear, Contract Templates are Here!
Need help writing up your contract?
No worries, we’ve got templates for you:
Template 1, Template 2, Template 3.
Don’t ever just take a template and fill in the blanks. Make sure you’re actually reading the words too before you finalize a binding agreement between you and a business or individual.
Whether you’re the hiring party or the party being contracted, you’ll want to have a lawyer looking over the contract before you sign to make sure you and your services or compensation are protected.
Keyword: contractor agreement