Freelance work is increasingly common as technology continues to provide new ways for workers to complete tasks remotely. Every small business owner should have an agreement in place with freelancers, or independent contractors, to set expectations in writing. An Independent Contractor Agreement is crucially important to establish the scope of the working relationship, including factors such as compensation details and deadline expectations.
The following information explains the main differences between independent contractors and employees and answers important questions about why a contract is needed and the key provisions that need to be included before signing.
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What is the difference between an independent contractor and an employee?
The main difference between an independent contractor and an employee is that the independent contractor retains their “independence” as a worker. Whereas employees often commit to working only for their employer for the duration of their employment, independent contractors retain the ability to seek work from other sources. In an employer-employee relationship, the employer typically controls all of the following factors:
- Where the work is done, either at the workplace itself or another location
- The hours during which the work is done
- How the work is done
- Mandatory attendance at meetings and other functions
- Use of equipment owned by the employer and provided to the employee for work purposes
Independent contractors are not typically subject to the same level of control by the hiring client. They usually set their own hours, have their own process for completing projects, and own their own equipment. They are, in essence, a business-of-one. Independent contractors don’t receive company benefits, such as paid holidays and vacations, paid sick days, and health insurance. The expense of having to pay for these benefits out of pocket are often factored into the contractor’s rates.
Why does a business owner need an Independent Contractor Agreement?
A business owner needs an Independent Contractor Agreement for several reasons.
Setting Expectations: An Independent Contractor Agreement explicitly sets out the expectations and parameters of the work to be done, the compensation, and the nature of the relationship itself. It is a clear-cut explanation of the expected workflow, how communication will be handled, and how the relationship will work.
Work Product Ownership: An Independent Contractor Agreement protects your business interests by:
- Establishing ownership of any work product generated as a result of the arrangement
- Requiring contractors to actively protect trade secrets
- Providing for confidentiality and non-disclosure of key business information
Affirming the Independent Contractor-Client Relationship: Employers are required to do certain things for employees that they are not required to do for independent contractors, so it’s important to affirm the relationship in writing. For example, independent contractors are responsible for paying all of their own income taxes, while employers are required to deduct part of the employees’ taxes from their paychecks. Employers usually provide some benefits to employees, such as health insurance and paid time off. These benefits are not offered to independent contractors.
Having a contract alone may not necessarily protect you from a freelancer later claiming they were an employee, but it may be a good thing to do nonetheless because it indicates the intention to have an independent contractor-client arrangement at the outset of the relationship. You might seek further protection by having an attorney review your Independent Contractor Agreement or seeking answers to questions you might have.
What should be included in an Independent Contractor Agreement before signing?
An Independent Contractor Agreement should contain all of these basic terms:
- Description of the services to be provided
- How payment will be handled, whether hourly or on a per-project basis
- Term of the agreement, typically with a definitive end date
- Explanation of what the hiring party will provide or not provide, such as equipment, for the independent contractor to use
- Ownership of work product if that is relevant to the work being performed
- Confidentiality clause
- Applicable governing law of the agreement
These terms, as well as several others, are included in Rocket Lawyer’s free Independent Contractor Agreement.
What are options for signing an Independent Contractor Agreement remotely?
There are various options available for signing an Independent Contractor Agreement remotely, but the most efficient way is to use a third-party application, such as RocketSign, to sign the document electronically. Signing documents electronically has become a necessity due to the business challenges that have arisen as a result of the COVID-19 pandemic. Getting ink signatures on a contract can be a hassle. RocketSign eliminates the back-and-forth by providing an end-to-end solution for your document signing needs.
Having an Independent Contractor Agreement with each of your freelancers will help establish the work to be done, protect your interests in the assets that are created by the independent contractor for your business, and add clarity to the independent contractor-client relationship that is the intent of both you and your new freelancer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.