What Is Independent Contractor Agreement?
Independent contractor agreements are important documents that protect the relationship between a hiring party and a contractor.
In this article, we discuss these documents in greater depth, explaining why they’re important and what information they convey. Towards the end of the article, we offer our final thoughts on the future of legal agreements.
What Is an Independent Contractor Agreement?
In this section, we discuss the various pieces of information that an independent contractor agreement conveys.
Who Is Being Hired
An Independent Contractor is usually drafted by the company that is making the hire, though technically they can be drafted by anyone.
Really, their main purpose is to protect the relationship between an employer and contractor. This will help avoid any legal issues in the future, as independent contractor agreements express who is being hired and why.
Unlike employee agreements, independent contractor agreements apply to workers who are being hired on a temporary basis. Many of these workers are self-employed and are responsible for filing and paying their own taxes. Independent contractor agreements can be important documents that validate the tax status of both the worker and underlying company.
In particular, independent contractors have to pay both Social Security and Medicare taxes. If you’re considered an employee, then you would only pay half of each tax and your employer would pay the other half. This is a significant difference, making these kinds of agreements critical when it comes time to filing taxes.
These agreements are particularly important if there is some dispute between contractor and employer. Some contractors try to get away with filing as an employee on their tax form at the end of the year in order to reclaim some money from their employer. As an employer, you should watch out for this kind of activity, as it could lead to an unnecessary loss of funds.
How the Contractor Will Be Paid
Independent contractor agreements also discuss how the contractor will be paid.
This might be a fixed amount that is paid to the contractor every few weeks. Other times, the agreement between the contractor and employer is contingent on many factors. For example, an employer might hire a photographer on a case by case basis in which pay is a function of performance and results.
Some employers might even include stipulations in the independent contractor agreement that allow contractors to be paid bonuses if certain criteria are met. For example, an employer might offer a freelance writer a $2000 bonus if his article gets over 100,000 views.
Copyright Terms
Many artists sign independent contractor agreements when they license their art or their skills to an employer. Most agreements allow contractors to own the copyright to any valuable art produced while under contract, though of course, each agreement is different.
If your work involves the creation of anything valuable, then we recommend reading the fine print of your independent contractor agreement. Some companies like to insert sneaky policies into their agreement that claims partial copyright ownership over anything created. This could be a physical good or something more intangible like a computer program or website.
This is an especially important part of the agreement if the work you do eventually expands into some larger project. For example, some freelance writers might want to publish their essays in a novel. Thus, detailing who has ownership over the essays would be critical before beginning. This would allow both parties to be on the same page should any opportunities for publication arise in the future.
Non-Compete Clauses and Other Special Terms
Some independent contractor agreements include non-compete clauses that regulate who the contractor can work for after their employment has ended.
These clauses are notable to watch out for because they restrict how contractors can make money in the future. This could be particularly confining if the contractor has to end the relationship with the employer prematurely for some reason. The contractor might be severely restricted in terms of how they make money, which could affect where the contractor moves.
If you notice these clauses or any other special terms that seem suspicious to you, try to negotiate and perhaps find some middle ground. You may not be able to get everything you want, but you can certainly avoid extremely stringent terms that prevent you from working where you want afterwards.
The Benefits of Independent Contractor Agreements
The main benefit of an independent contractor agreement is that it provides legal protection should any disputes arise in the future between contractor and employer.
If the agreement was well-crafted and anticipated the future accurately, any conflict should be dissolved relatively quickly. This prevents expensive lawyer fees and court costs, as usually, the agreement provides a foundation for settling out of court. Instead of having to form complicated arguments and spend months collecting evidence, the precise terms of the agreement can be referenced in order to avoid extraneous red tape.
Some independent contractor agreements are poorly crafted, setting the stage for years of legal battles. Finely crafted agreements minimize this possibility, which is critical for any contractor or company with minimal resources.
For example, a new company just beginning to hire freelance workers might concoct a detailed agreement in order to protect the company in case of conflict. This might win over initial investors who are now more willing to invest in the fledgling company due to less liability. Companies that don’t draft these agreements present a significant risk to investors given the potential for being sued.
This is especially important when it comes to artist contractors, as there is a burgeoning movement related to empowering artists to claim ownership over their creative products. Independent contractor agreements are critical, as lots of money is potentially at stake. The entertainment industry, for example, is a $2-trillion industry. The distribution of this money could be much different depending on the nature of various independent contractor agreements.
Thinking About the Future
Furthermore, independent contractor agreements offer both contractors and employers an opportunity to think about the nature of their relationship. Some agreements are never even relied upon after they are drafted. Yet, these documents are still beneficial because they allow both parties to examine their expectations for the future and whether these expectations are realistic.
It might be the case that employers have expectations that the contractor can’t possibly fulfill. Yet, these expectations might never be expressed to the contractor if an independent contractor agreement is not forged. In this sense, these documents put both parties on the same page and lead to a more harmonious relationship.
For example, just imagine a freelance cinematographer who is hired to film a documentary. This kind of artist might ask his employer to specify the precise terms of his payment schedule in the independent contractor agreement. This might allow the artist to see that the employer is willing to pay more money when the artist is filming at night. This could totally change the nature of the documentary.
Thus, independent contractors’ agreements can be very influential in determining the goods and services that are produced. Some artists might draw their inspiration from these documents, as a certain line of work might carry greater financial compensation as outlined in the agreement.
Alternatively, some employers might use these agreements as an opportunity to consider their operating costs in the future. This could allow them to more carefully budget their money, leading to greater financial security.
Our Final Thoughts on Independent Contractor Agreements
We think independent contractor agreements will change drastically in the future as the legal industry seeks to go paperless. Eventually, we think environmental activists will push for prohibitions on printing paper in all industries, leading to all information being digitized.
This would change the game when it comes to the kind of work that contractors could perform. Essentially, these documents could be drafted by artificial intelligence if a contractor wants to provide legal protection for his work but can’t get ahold of the employer. This might be a possibility in the future as the amount of remote, freelance workers increases. Contractors might have to rely on digitized agreements forged by robots to avoid time-consuming, manually-drafted negotiations.
Regardless of what happens in the future, we think independent contractor agreements aren’t always a good thing. Sometimes they can cause harm. For example, some freelance artists might only thrive when the conditions of employment are more ambiguous. Many agreements can cause issues to surface that alienate the artist. For example, some artists might think the relationship with the employer is more of a collaboration while the independent contractor agreement characterizes it otherwise.
Thus, receiving this kind of document to sign might shock the artist and make them reconsider the nature of their work. Or, some activist artists might only agree to work if legal terminology is not involved. Some artists are suspicious of the potentially manipulative language that can be used in these kinds of agreements. Since many employers have lawyers that draft these documents, some artists can feel like a hierarchy is established that puts them at a disadvantage.
We think that artificial intelligence will be used in the future to minimize the risk involved when an artist reads an agreement. Smart programs will be able to highlight dubious words that could offer loopholes for employers to take advantage of artists. This is obviously not ideal, especially when artists are crucial for a culturally healthy society.
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