Free Independent Contractor Agreement

Generally, an "employee" is a person who is hired by another person or business (an "employer") for a wage or fixed payment in exchange for personal services and who does not provide the services as part of an independent business. This definition can be contrasted with an "independent contractor" who is a person or entity who, as part of an independent business, becomes obligated to provide goods and/or services for a price. For example, an expert in computer systems might provide services to other businesses as a "consultant."

The IRS has very strict guidelines concerning whether a person providing services is an employee or an independent contractor. Frequently, businesses attempt to make their associations with workers "independent contractor" relationships so that they are not obligated to provide employee benefits or to withhold employee payroll taxes. However, the IRS often views such relationships as "employer/employee" relationships in order to assess payroll taxes against the employer. In such cases it is advisable to consult a tax expert to determine whether an Employment Agreement should be used instead of a Consulting Agreement or the Independent Contractor Agreement. If one or more of the following factors apply, there is a reasonable possibility that the IRS will view the "worker/consultant/independent contractor" as an employee.

• The independent contractor will work only for the business (the "Company") that is hiring the independent contractor, the relationship between the independent contractor and the Company is continuous, or the Company integrates the independent contractor into its business operations.
  
• The independent contractor will be paid an hourly, weekly, or monthly wage, or the independent contractor does not bear the risk of realizing a profit or loss.
  
• The Company will control or significantly influence the independent contractor's working hours and/or work environment, and the independent contractor works on the Company's premises.
  
• The Company will control or significantly influence the independent contractor's work methods, and is not merely interested in the results of the independent contractor services.
  
• The Company furnishes tools and equipment required by the independent contractor to perform the services, the Company pays for business or traveling expenses, and the independent contractor has little or no investment in its independent business.
  
• The Company requires that the independent contractor render services personally, the Company hires, supervises, or pays assistants, or the Company determines the sequence of work to be performed.
  
• The relationship of the independent contractor to the Company includes other factors that are similar to factors that characterize the relationships of employees to employers.

This "employee/independent contractor" issue is important for more than just tax-related issues. It also impacts on employer liability. Generally, an employer can be held liable for the actions of an employee that were committed during the course and scope of the employment relationship. On the other hand, a business is less likely to be held liable for the actions of independent contractors.

Should you have additional questions about the type of relationship created, or if you have any doubt whether a worker is an employee or independent contractor, consult with your financial advisor or attorney for further advice.

The Independent Contractor Agreement is a document under which a "Contractor" contracts to provide services for a "Company." Under this agreement, the Contractor is an independent contractor with respect to the Company, and not an employee of the Company. This Agreement should not be used if the Contractor is really an employee of the Company. In many respects, the Independent Contractor Agreement is simply a short-form version of a Consulting Agreement.

The Independent Contractor Agreement should be signed by both parties and becomes effective as of the date inserted at the beginning of the Agreement.

Understanding Work-for-hire, Consulting and Employment Agreements
Forms for Hiring Employees or Contractors
How to Amend a Contract
What Should Be Included in a Consulting Agreement
Important Facts About Non Disclosure Agreements

The Independent Contractor Agreement includes an optional paragraph that obligates the Contractor (or independent contractor) to protect and not disclose the Company's proprietary or confidential information. "Confidential information" is information that is unique, and for which there would be harm if it was disclosed. This provision also includes an optional sentence that requires the Contractor to return the Company's records.

The Independent Contractor Agreement includes an optional paragraph that provides protection to the Company with respect to copyrights, patents, inventions, and other intellectual property. Such property could include novels, sound recordings, a new type of mousetrap, or a cure for a disease. This paragraph simply provides that the Company will be the owner of any ideas or products that are developed through the efforts of the Contractor.

The Company may wish to include several provisions that extend protections to the Company for the actions of the Independent Contractor. The Company may wish to require that the Independent Contractor obtain insurance to cover all of its employees as to this particular agreement. Having proof of insurance for the activity that the agreement will govern provides additional protection to the Company.

Similarly, a Company can also require that the Independent Contractor indemnify the Company for any injuries that the Company may encounter or cause through the acts of the Independent Contractor. This essentially means that the Independent Contractor is responsible if something or someone is harmed because of the activities of the Independent Contractor.

The following guidelines are often used by courts in determining whether non-compete provisions are "reasonable," and therefore, enforceable. The "time period" should be reasonable, limited to the useful life of the information possessed by the Contractor. In many cases, this will be two to five years, but could be as short as one year, depending on how rapidly the information becomes obsolete. The "geographical area" in which competition is prohibited should be limited to the specific geographical area in which the Contractor actually operated or for which the Contractor had substantial information. A determination of reasonableness may depend on the specific facts of each situation.

The non-compete provision is intended to provide additional protection against the possibility that the knowledge gained by the Contractor regarding the company will not be used in the future to compete with the employer.

However, the courts in many states view non-compete provisions as "restraints of trade," and therefore are reluctant to enforce them. Some states, including Alabama, California, Colorado, Hawaii, Louisiana, Montana, Nevada, North Carolina, North Dakota, South Dakota, Oklahoma, Oregon, Texas, and Wisconsin have significant restrictions on the enforceability of non-compete provisions. Therefore, it is advisable to consult a lawyer to determine to what extent a non-compete provision may be enforceable in your state.

Non-compete provisions are enforceable in many states only when they are reasonable in terms of their effect on the parties and the public, and the restraint imposed is not greater than necessary to protect a company's valid business interest. Generally, for a non-compete provision to be enforceable, the company must have a protectable business interest in specific customer or trade information.

This document can be set up with a variety of payment options. A single lump sum payment can be made at the completion of service or at some other defined date or event. Multiple installment payments can be made on specific dates or after specific events have occurred, such as completion of various stages of a project. If the Agreement is for services that will be provided on an ongoing basis, fixed wages can be defined to pay for the services at an hourly rate or other period of payment. If none of these options meet your needs, payment terms can be written into the document.

It is not unusual for a person working under a Independent Contractor Agreement (a "Contractor") to provide services based on an hourly rate or other fixed wage. However, if payment (based on the fixed wage) is made weekly or biweekly, the IRS may view such an arrangement as indicating an employer/employee relationship. It is recommended that you read about the IRS guidelines in the Employee or Independent Contractor topic. Generally, it is preferable to pay the fee in a lump sum upon completion of the services to avoid a determination by the IRS that the Contractor is an employee.

1. The Independent Contractor Agreement should be signed by both parties and becomes effective as of the date specified in the Agreement. It is not necessary that the signatures be witnessed or notarized.

2. The Independent Contractor Agreement should only be used for a party who is an "independent contractor" with respect to the Company. If instead, the arrangement between the Company and the Contractor conforms more closely to the characteristics of an employee/employer relationship, the Employment Agreement may be more appropriate.

3. It is advisable to sign two copies of the Agreement so that each party will have a copy with original signatures. Original copies should be kept in a fire-proof and safe location.

4. A lawyer should be consulted regarding any issues not addressed by this program.

If any social media contacts are acquired by the Company as a result of the Contractor's service, it is important to specify which party will own the rights to the social media contacts. Contractors use social networking on behalf of the company to help raise the company's profile and their online efforts may help the company to attract contacts, including "followers" and "friends." These social media contacts may be viewed by a company as an online client list. Since social media contacts are based on the promotion of the company's services or business activities, the Company generally has the expectation to be the owner of these contacts. Including this provision will confirm that the company retains ownership of social media contacts.

It is important in a Independent Contractor Agreement to specify which party will own the rights to the work product that is provided by the party who provides the services (the "Contractor"). Generally, the party who requested services (the "Company") has an expectation that the Company will be the owner because the Company is specifically paying for the services, which presumably would include ownership. The Work Product Ownership provision confirms this expectation and obligates the Contractor to cooperate in documenting the Company's rights.