Whether a worker is classified as an independent contractor or an employee is an important distinction. Whereas a business must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on payments to an employee, it does not have to withhold or pay any taxes on payments to independent contractors. This Independent Contractor Agreement sets forth the rights and responsibilities of the business and the independent contractor, as well as confirm that the parties are entering into an independent contractor relationship rather than an employer-employee relationship.
Independent Contractor Agreement
This Independent Contractor Agreement sets forth the terms of the work relationship between a business and the independent contractor.
Available in MS Word. 6 pages.
- Services to be Performed
- Term of Agreement
- Independent Contractor Status
- State and Federal Tax Withholdings
- Vehicles and Equipment
- Business Licenses, Permits, and Certificates
- Workers’ Compensation
- Confidential Information
- Ownership of Work Produced
- No Partnership or Agency Relationship
- Assignment and Delegation
- Severable Provisions
- Dispute Resolution
- Governing Law
- Exclusive Agreement
How to Use
(1) Fill in the blanks with the appropriate information.
(2) Remove the yellow bracketed highlights.
(3) Review the document carefully to ensure it conforms with the parties’ agreement before signing.
What’s the difference between an independent contractor and an employee?
An independent contractor is generally considered to be self-employed. As such, a business that hires an independent contractor to do work does not have to withhold or pay any taxes on payments made to them. Whether a worker is an independent contractor or employee depends on the particular facts in the situation. Usually, the more control that the business has over the worker, the more likely that worker would be deemed an employee rather than an independent contractor. The general rule is that an individual is an independent contractor if the business that hired the contractor has the right to direct only the result of the work but has no right to control what will be done and how it will be done. People such as dentists, accounts, lawyers, and building contractors are generally considered to be independent contractors.
What are some of the indicators that a worker is an independent contractor rather than an employee?
The indicators that a worker is an independent contractor include, but are not limited to, the following:
- The independent contractor controls how the work will be done;
- No training is provided by the business that retains the independent contractor;
- The independent contractor provides his or her own supplies and equipment;
- The independent contractor is able to seek out other business opportunities;
- The independent contractor works on specific projects rather than works for the business indefinitely; and
- The independent contractor bears the risk of profit or loss in the work.
What could happen if a business misclassifies an independent contractor as an employee?
If a business misclassifies an employee as an independent contractor, the business could be held liable for penalties, fines, and back payments. It could also be subject to a class action lawsuit.