Basic Independent Contractor/Consultant Agreement Template

Introduction

When outsourcing work, it’s important that the worker is classified as an independent contractor and not an employee because the latter makes the employer liable for employee’s benefits, worker’s compensation insurance, taxes, vacation pay, etc. Generally, the more control the hiring party has over the worker, the higher likelihood such worker will be considered an employee. Read more on employee/contractor distinctions and tips on avoiding your contractors reclassified as employees here.

Key Elements

A good independent contractor agreement should contain the following clauses.

  Relationship of the Parties clause must clearly state that the worker is an independent contractor and not an employee, partner or agent. The contract must be titled Independent Contractor/Consultant Agreement to avoid confusion. Avoid using words like “partner,” “associate,” or “agent” because they imply joint liability where you will be liable for the other party’s mistake.

Assignment of intellectual property rights to the work product. Best IP protections for the hiring party contain “work for hire” designation but unfortunately in jurisdictions such as California this may reclassify an independent contractor as an employee. Read: Beware of the “work for hire” language in CA independent contractor agreements.

 The more control you exercise over the method of work, the more directions you give, the higher the likelihood the contractor will be reclassified as an employee with all resulting penalties and financial burdens. Therefore, the Scope of Services clause should, if possible, be limited to desired results of work but the contractor shall be as free to achieve such results as reasonably practicable and not precluded from working for (competing) businesses. Providing tools, equipment and training weighs towards employee classification.

  Contract Term – the shorter the lesser the chance the contractor will be reclassified as an employee.

  Confidentiality clause must be included if the contractor will have access to sensitive information, trade secrets, client lists, etc. Tips on drafting nondisclosure agreements and clauses here.

  Payment by the hour/week suggests employer/employee relationship. Paying for results/milestones is indicative of independent contractor. Reimbursement of expenses may also suggest employment relationship; a better strategy would be to estimate expenses before signing the contract and include them in a lump sum fee paid to contractor for job completion.

  Indemnification is a clause that ensures a party will be reimbursed for the other party’s wrongdoings, although the odds of enforcing this clause against a remote party (i.e. web developer in India) are very slim.   

Statement of Work (“SoW”) is a short convenient attachment to Independent Contractor Agreement that describes each new task/project to be performed. SoW states that all general terms in the master Independent Contractor Agreement apply. Executing Statements of Work as part of an ongoing working relationship is easier than drafting a whole new contract for every new task the contractor has to perform.

Independent Contractor Agreement Template

Here is a template that you can use as a starting point:

INDEPENDENT CONTRACTOR AGREEMENT

THIS AGREEMENT, made and entered into this [insert date] by and between [insert hiring party’s name and address], hereinafter referred to as “Client,” and [insert independent contractor’s name and address], hereinafter referred to as “Contractor.”

Recitals

A. Client desires to engage Contractor to perform certain services, as described in the attached Statement of Work (SoW), in accordance with the terms and conditions of this Agreement.

B. Contractor is an independent contractor and not an employee of Client, and Contractor is not entitled to any employee benefits or protections.

Agreement

1. Relationship of the Parties. This Agreement shall not be deemed to create an employment relationship, partnership, agency or joint venture between Client and Contractor. Contractor acknowledges and agrees that Contractor is an independent contractor and that Contractor is solely responsible for all tax obligations related to the compensation received under this Agreement.

2. Scope of Services. The services to be performed by Contractor under this Agreement are described in the attached SoW. Client shall have the right to specify the desired results to be achieved by Contractor, but Contractor shall have the sole right to control and direct the means by which such results are accomplished. Contractor may perform services for others during the term of this Agreement, provided such services do not interfere with Contractor’s performance of services for Client.

3. Confidentiality. Contractor acknowledges that Contractor will have access to confidential and proprietary information of Client, and Contractor agrees to maintain the confidentiality of such information and not to use it for any purpose other than the performance of services under this Agreement.

4. Intellectual Property. All work product created by Contractor in the performance of services under this Agreement shall be the exclusive property of Client, and Contractor shall assign all right, title and interest in such work product to Client.

5. Term. This Agreement shall commence on [insert date] and shall continue until [insert date or event that terminates the agreement]. Either party may terminate this Agreement at any time, with or without cause, upon written notice to the other party.

6. Payment. Client shall compensate Contractor for the services performed under this Agreement at the rate of [insert rate]. Payment shall be made [insert payment terms].

7. Indemnification. Contractor shall indemnify, defend and hold harmless Client, its officers, directors, employees and agents, from and against any and all claims, damages, liabilities, costs and expenses arising out of Contractor’s performance of services under this Agreement.

8. Governing Law. This Agreement shall be governed by the laws of [insert jurisdiction].

9. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior negotiations, understandings and agreements, whether written or oral, relating to the subject matter of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

________________               __________________

________________               __________________

Statement of Work

1. Description of Services.

2. Payment.

________________               __________________

Frequently Asked Questions

1. What is the difference between an employee and an independent contractor? An employee is someone who works for an employer and is subject to the employer’s control and direction. An independent contractor is a self-employed individual who provides services to a hiring party but is not subject to their control and direction.
2. Why is it important to classify a worker as an independent contractor? Classifying a worker as an independent contractor reduces the financial obligations of the hiring party such as taxes, employee benefits, worker’s compensation insurance, etc.
3. What should be included in an independent contractor agreement? An independent contractor agreement should include a “Relationship of the Parties” clause, IP protection clause, limited “Scope of Services” clause, short “Contract Term,” confidentiality clause if necessary, payment for results rather than by the hour, indemnification clause, and a “Statement of Work” attachment.
4. What should be avoided in an independent contractor agreement? Words that imply joint liability, excessive control and direction over the worker, and paying by the hour should be avoided in an independent contractor agreement.
5. Can I include a confidentiality clause in an independent contractor agreement? Yes, a confidentiality clause can be included in an independent contractor agreement if the worker will have access to sensitive information.
6. What is a “Statement of Work” in an independent contractor agreement? A “Statement of Work” is a short attachment to the independent contractor agreement that describes each task or project to be performed by the worker.
7. How can I ensure that my independent contractor agreement is legally binding? To ensure that an independent contractor agreement is legally binding, it should be in writing, signed by both parties, and include all relevant details of the work arrangement.

8. What factors determine whether a worker is an employee or an independent contractor? The factors that determine whether a worker is an employee or an independent contractor vary by jurisdiction, but generally include the degree of control and direction exercised by the hiring party over the worker, the method of payment, the provision of tools and equipment, the duration of the working relationship, and the right to control the result of the work performed. IRS checklist: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
9. What is the impact of reclassifying a worker from an independent contractor to an employee? Reclassifying a worker from an independent contractor to an employee has significant financial and legal consequences for the hiring party. The hiring party becomes liable for taxes, employee benefits, worker’s compensation insurance, and other financial obligations that come with being an employer.
10. Can I provide tools and equipment to an independent contractor without reclassifying them as an employee? Providing tools and equipment to an independent contractor can increase the likelihood of reclassification as an employee, but it does not automatically result in reclassification. The key factor is the degree of control and direction exercised by the hiring party over the worker.
11. How can I protect my confidential information in an independent contractor agreement? To protect confidential information in an independent contractor agreement, include a confidentiality clause that requires the worker to keep confidential information confidential, prohibit the worker from disclosing confidential information, and include remedies for any breach of the confidentiality obligation.
12. Can I include a non-compete clause in an independent contractor agreement? The enforceability of non-compete clauses in independent contractor agreements varies by jurisdiction. In some jurisdictions, non-compete clauses are enforceable, while in others they are not. Before including a non-compete clause in an independent contractor agreement, it is important to seek legal advice to ensure that it is enforceable in the jurisdiction where the work will be performed.
13. What happens if I violate the terms of an independent contractor agreement? If the hiring party violates the terms of an independent contractor agreement, the independent contractor may have the right to terminate the agreement, seek damages for any losses suffered, or take other legal action. Conversely, if the independent contractor breaches the agreement, the hiring party may have the right to terminate the agreement and seek damages for any losses suffered.

14. What is a Statement of Work (SoW) and why is it important? A Statement of Work (SoW) is a short, convenient attachment to an Independent Contractor Agreement that describes each new task or project to be performed by the contractor. The SoW is important because it clearly outlines the specific tasks and responsibilities of the contractor, as well as any deadlines or milestones, and helps to ensure that both parties have a clear understanding of the scope of the work to be performed.
15. Can I use a single Independent Contractor Agreement for multiple projects or tasks? Yes, you can use a single Independent Contractor Agreement for multiple projects or tasks by including a Statement of Work (SoW) for each new task or project. The SoW should state that all general terms in the master Independent Contractor Agreement apply, and that executing a SoW for each new task is easier than drafting a whole new contract for every new task the contractor has to perform.
16. How can I ensure that an independent contractor agreement is legally binding? To ensure that an independent contractor agreement is legally binding, both parties should sign the agreement, either in writing or electronically, and keep a copy of the agreement for their records. Additionally, the agreement should be well-drafted, clear, and concise, and should comply with all relevant laws and regulations in the jurisdiction where the work will be performed.
17. What should I do if I have questions or concerns about an independent contractor agreement? If you have questions or concerns about an independent contractor agreement, it is best to consult with an attorney who is knowledgeable in the laws and regulations applicable to independent contractor agreements in your jurisdiction. An attorney can review the agreement and provide you with advice on its legality and enforceability, as well as any potential risks or liabilities.

18. Can an independent contractor agreement be modified after it has been signed? Yes, an independent contractor agreement can be modified after it has been signed, but any changes must be agreed upon by both parties and reflected in a written amendment to the agreement. The amendment should be signed by both parties and kept with the original agreement for reference.
19. Can an independent contractor agreement be terminated early? Yes, an independent contractor agreement can be terminated early, either by mutual agreement of the parties or by one party providing written notice to the other. The specific terms for termination should be outlined in the agreement, including any notice requirements, consequences of termination, and any compensation due to the contractor for work performed up to the time of termination.
20. What happens to the work product when the independent contractor agreement is terminated? The ownership and rights to the work product created by the contractor during the course of the agreement should be clearly defined in the agreement. In most cases, the hiring party will own the work product, but the exact terms and conditions of ownership should be specified in the agreement. If the agreement is terminated, the parties should follow the terms of the agreement regarding the ownership and transfer of the work product.

21. Can an independent contractor agreement be enforced in court? Yes, an independent contractor agreement can be enforced in court. The agreement is a legally binding contract and can be used as evidence in case of any disputes between the parties. If either party breaches the terms of the agreement, the other party may seek legal remedies such as monetary damages or specific performance. It is important that both parties fully understand the terms of the agreement before signing, and that the agreement is clear, complete, and accurately reflects their understanding and intent.
22. What should be included in an independent contractor agreement to protect the hiring party? An independent contractor agreement should include the following provisions to protect the hiring party: a clear definition of the worker’s status as an independent contractor and not an employee, a scope of services clause that outlines the desired results of the work but allows the contractor flexibility in how they achieve those results, a confidentiality clause to protect sensitive information and trade secrets, payment terms that are indicative of an independent contractor relationship (such as payment for results or milestones), an indemnification clause to hold the contractor responsible for any damages caused by their actions, and a clear statement of ownership and rights to the work product.
23. Can an independent contractor agreement be used for all types of work? An independent contractor agreement can be used for a variety of work, but it is important to consider the specific laws and regulations that apply to the type of work being performed and the location of the worker. Some types of work, such as certain skilled trades, may have specific requirements or restrictions that must be considered when drafting an independent contractor agreement. It is important to consult with legal counsel to ensure that the agreement is compliant with all applicable laws and regulations.

24. What happens if an independent contractor is reclassified as an employee? If an independent contractor is reclassified as an employee, the hiring party may become liable for various employment-related obligations, such as taxes, benefits, workers’ compensation insurance, and vacation pay. This can result in significant financial and legal consequences, including fines and penalties. To minimize the risk of reclassification, it is important to ensure that the independent contractor agreement accurately reflects the true nature of the relationship between the parties, and that the worker is classified as an independent contractor in accordance with applicable laws and regulations.
25. Can an independent contractor agreement be modified? Yes, an independent contractor agreement can be modified. However, any modifications to the agreement should be made in writing and agreed upon by both parties. It is important to carefully consider any proposed modifications, as they may have legal implications. It is also important to ensure that any modifications are compliant with applicable laws and regulations.
26. How long should an independent contractor agreement last? The duration of an independent contractor agreement depends on the specific circumstances of the relationship between the parties. Some independent contractor agreements are for a set period of time, while others are open-ended. In general, the shorter the term of the agreement, the lower the risk of reclassification as an employee. It is important to carefully consider the length of the agreement and to ensure that it accurately reflects the parties’ understanding and intent.

27. Is an independent contractor agreement legally binding? Yes, an independent contractor agreement is a legally binding contract that sets forth the terms and conditions of the relationship between the hiring party and the independent contractor. The agreement is enforceable by law, and both parties are obligated to fulfill their respective obligations as set forth in the agreement. However, it is important to ensure that the agreement is compliant with applicable laws and regulations, and that it accurately reflects the true nature of the relationship between the parties.
28. Can an independent contractor be terminated before the end of the agreement? Yes, an independent contractor agreement can be terminated by either party before the end of the agreement, provided that the termination is in accordance with the terms set forth in the agreement. For example, the agreement may provide for termination for cause, such as breach of contract or failure to meet performance standards. In such cases, the termination may be immediate and without notice. It is important to carefully review the termination provisions of the agreement and to ensure that they are compliant with applicable laws and regulations.
29. What are the consequences of terminating an independent contractor agreement early? The consequences of terminating an independent contractor agreement early depend on the specific circumstances of the termination, as well as the terms set forth in the agreement. For example, the agreement may provide for payment of damages or liquidated damages in the event of early termination. In some cases, the termination may also trigger obligations related to the return of confidential information or trade secrets. It is important to carefully review the termination provisions of the agreement and to ensure that they are compliant with applicable laws and regulations.

30. Can an independent contractor be paid less than minimum wage? No, an independent contractor is entitled to be paid the minimum wage set by law for the jurisdiction in which the work is performed. The independent contractor agreement should specify the rate of pay for the services provided, and it should be in compliance with all applicable minimum wage laws and regulations. Failure to pay the minimum wage to an independent contractor may result in legal consequences for the hiring party.
31. Are taxes withheld from an independent contractor’s pay? No, taxes are not generally withheld from an independent contractor’s pay. Instead, independent contractors are responsible for paying their own taxes, including self-employment taxes and income taxes. The hiring party is not responsible for withholding or paying taxes on behalf of the independent contractor. However, the hiring party may be required to report payments made to independent contractors to the relevant tax authorities.
32. Are benefits provided to an independent contractor? No, benefits, such as health insurance, paid time off, and retirement plans, are typically not provided to independent contractors. Independent contractors are responsible for securing their own benefits, and the hiring party is not responsible for providing these benefits. However, the independent contractor agreement may provide for reimbursement of certain expenses incurred by the independent contractor in the course of performing services under the agreement.
33. Can an independent contractor file for unemployment if the agreement is terminated? In general, independent contractors are not eligible for unemployment benefits, as they are not considered employees. However, the eligibility for unemployment benefits can depend on the specific circumstances of the termination, and it may be necessary to consult with legal or tax professionals to determine whether unemployment benefits are available in a given situation.

34. Can an independent contractor unionize? Yes, independent contractors have the right to unionize under the National Labor Relations Act. However, the laws governing unionization of independent contractors can vary by jurisdiction, and it may be necessary to consult with legal professionals to determine the specific rights and obligations of independent contractors with respect to unionization.
35. Can an independent contractor sue the hiring party for discrimination or harassment? Yes, independent contractors may have the right to sue the hiring party for discrimination or harassment under federal and state employment discrimination laws. The specific rights and obligations of independent contractors with respect to discrimination and harassment can depend on the jurisdiction and the specific circumstances of the case, and it may be necessary to consult with legal professionals to determine the availability of legal remedies in a given situation.
36. Can an independent contractor be terminated without cause? Yes, an independent contractor agreement can be terminated by either party without cause, provided that the termination is done in accordance with the terms of the agreement. The specific terms of termination can vary depending on the jurisdiction and the terms of the agreement, and it may be necessary to consult with legal professionals to determine the rights and obligations of the parties in the event of termination.
37. What should be included in an independent contractor agreement? An independent contractor agreement should include a clear description of the services to be provided by the independent contractor, the terms and conditions of payment, any confidentiality or non-competition provisions, the term of the agreement, the rights and responsibilities of the parties, and any other relevant provisions that are necessary to clearly define the relationship between the parties. Additionally, the agreement should be in compliance with all applicable laws and regulations.

38. Is it necessary to have a written independent contractor agreement? While a written agreement is not required by law, it is highly recommended to have a written independent contractor agreement in order to clearly define the relationship between the parties, protect both the hiring party and the independent contractor, and ensure that the terms of the agreement are clearly understood and enforceable. A written agreement also provides a reference point in the event of any disputes or misunderstandings.
39. Can an independent contractor agreement be amended after it has been signed? Yes, an independent contractor agreement can be amended after it has been signed, provided that both parties agree to the changes and the amendment is made in accordance with the terms of the agreement. It is best practice to make any amendments to the agreement in writing and have both parties sign the amendment to ensure that the changes are clearly understood and enforceable.
40. How does an independent contractor agreement differ from an employment contract? An independent contractor agreement is a contract between an independent contractor and a hiring party that defines the services to be provided by the independent contractor and the terms and conditions of payment. An employment contract, on the other hand, is a contract between an employer and an employee that defines the terms and conditions of the employment relationship, including compensation, benefits, and other employment-related obligations. The key difference between the two is that an independent contractor is not considered an employee for legal purposes and is not entitled to the same benefits and protections as an employee.

41. Can an independent contractor agreement be terminated by either party? Yes, an independent contractor agreement can be terminated by either party, provided that the terms of the agreement allow for termination and the termination is made in accordance with those terms. It is recommended to include a termination clause in the agreement that outlines the circumstances under which the agreement may be terminated, the notice required for termination, and any other relevant provisions.
42. Can an independent contractor be paid a salary instead of being paid per project or hour? Yes, an independent contractor can be paid a salary instead of being paid per project or hour, provided that the terms of the agreement allow for this and the salary amount is agreed upon by both parties. However, paying a salary may suggest an employment relationship, which can result in reclassification as an employee for legal and tax purposes. It is important to carefully consider the payment structure and ensure that it is consistent with the independent contractor relationship.
43. Is it necessary for an independent contractor to have insurance coverage? Insurance coverage for independent contractors is not typically required by law, but it is highly recommended to protect both the independent contractor and the hiring party from potential liabilities. For example, liability insurance can protect the independent contractor against claims related to their work, while workers’ compensation insurance can protect the hiring party against claims related to workplace injuries sustained by the independent contractor. The terms of the independent contractor agreement should outline any insurance requirements and the responsibilities of each party in this regard.
44. What happens if an independent contractor breaches the agreement? If an independent contractor breaches the agreement, the hiring party may be entitled to take legal action to enforce the terms of the agreement and seek damages for any losses incurred as a result of the breach. The specific remedies available in the event of a breach will depend on the terms of the agreement and the laws of the jurisdiction in which the agreement was executed. It is recommended to include a dispute resolution clause in the agreement that outlines the process for resolving disputes in the event of a breach.