An independent contractor is someone who is contracted by a client to perform a certain job. An independent contractor is different from an employee. An independent contractor will be responsible for the payment of his own taxes, won’t be eligible for any state or federal insurance, and is, most often, paid on a project-to-project basis rather than on a recurring basis. An independent contractor agreement, for tax purposes, is also known as a ‘1099’ agreement. Contractors will have to collect all of the agreements over the course of a fiscal year and submit them to the IRS when filing taxes.
What is an Independent Contractor?
An independent contractor is an individual hired by a client to perform a certain job or assist the client in whatever capacity they so desire. Clients should keep in mind that an independent contractor won’t be subject to any policy, and so, may work on their own schedule (unless explicitly stated in the agreement) and work in any atmosphere they desire, so long as they honor the commitments made to the client within the agreed-upon time frame. Most often, independent contractors include, but are not limited to, the following services;
- Any freelance service, i.e., artist, writer, designer, photographer, video grapher, etc.
- Any consultancy-based gig, including, but not limited to, professional services, healthcare services, financial services, and much more.
Keep in mind that legal services are slightly different, and an advocate or lawyer won’t be considered an independent contractor within the boundaries of a 1099 agreement.
- Any one-time gig. This typically includes things like guest-speakers, performers, etc., as well as independent laborers that have been contracted to assist with a particular project.
How Do I Enlist an Independent Contractor?
Naturally, the first step of this process is to identify individuals with whom you would like to work. Once you have agreed to enlist their services in exchange for compensation, you can begin drafting a 1099 agreement to formalize the arrangement.
To make the arrangement formal and legally binding, follow these steps;
- Provide a w9 form to the contractor: A W9 form authorizes the client to collect employment information and requires the independent contractor to provide their Social Security Number (SSN) and Employment Identification Number (EIN) directly to the IRS. These are used to verify employment status, as well as track tax-related information on behalf of the government. Keep in mind that, if a contractor does not have adequate work authorization, the client will not be able to legally hire them.
- Background Checks: This step, while not necessary, is highly recommended when clients are enlisting contractors for the first time. If the client doesn’t have a personal relationship with the contractor or has no mutual connections that can speak to the credibility of the contractor, a background check can be very useful – It will give the client a better idea of the work ethic and history of the contractor, while also disclosing any criminal offenses they may have committed.
- Draft the 1099 Form: Drafting the 1099 form is a very simple process. Some clients may require more (or less!) clauses than specified within the template, such as a non-disclosure clause, or an exclusivity clause. This is very important and gives the client a certain degree of legal protection in case of a breach, so we highly recommend having a legal professional around when drafting and adding additional clauses.
- Signing the forms: Once the drafting process is complete and you have had a legal authority verify the contents of the agreement, all you need to do is sign and date the document, as well as obtain the signature of the independent contractor.
If the monetary amount is less than $600, no contract will be required. If the amount is greater than $600, clients are required to obtain a copy of the 1099 form for taxation purposes. Also, keep in mind that the specifics and particulars of a contract will always have to be in accordance with state law. Naturally, laws vary from state to state, and so, the client and the contractor should be sure to draft the document within accordance to state law in the state in which the agreement is drafted and enforceable.
To help you out further, we’ve also compiled a template of an independent contractor agreement that may be used as-is, or modified to best suit your needs. Keep in mind that this only includes the body of the contract, and doesn’t include the signatory section, which usually lists the names of the parties contingent to the contract. It can be found below;
Independent Contractor Agreement Templates
II. THE SERVICES
The contractor agrees to provide the following services and/or perform the following task(s). For the purposes of this contract, these obligations will hereby be referred to as “The Services.”
(Here, the contractor must list out what exactly they will do for the client. In many cases, clients may request things like schedules and plans, which may be attached here as well, giving both parties an added degree of legal protection and flexibility.)
In exchange for the services detailed in Section II, the client hereby agrees to pay the contractor in the following manner;
(a) A sum of _________________________________ for the entirety of the contract. (b) A sum of /hr (c) Other (Please explain.) _________________________________
All payments shall be due upon completion of the work specified in Section II.
All payments shall be due upon the date of _________________________________. (You may add either one, depending on the situation and the agreement.)
IV. ADDITIONAL CLAUSES
(This section allows either party to insert additional clauses that they may require. Typically, this includes things like exclusivity clauses, non-disclosure agreements, confidentiality clauses, and more. These clauses give both parties, i.e., the client and the contractor, an added degree of protection, as well as allowing them to tailor it to their needs. We recommend having legal counsel go over this section of the contract once it is drafted!)
V. TERMS AND CONDITIONS
(Any additional terms and conditions may be added here.)
VI. THE AGREEMENT IN ITS ENTIRETY
The parties hereby agree that this agreement supersedes any and all previously existing agreements between the parties, and serves to represent the entirety of the agreement between said parties.
Client Name _________________________________ DATE _________________________________
Client Signature _________________________________ DATE _________________________________
Contractor Name _________________________________ DATE _________________________________
Contractor Signature _________________________________ DATE __________________________________
Agreement Templates (by Types)
Agreement Templates (by State)
Frequently Asked Questions
The article above works as a complete guide to writing an independent contractor agreement. It is a fairly simple process, which is legally binding. Simply have the independent contractor fill in a 1099 agreement, list all the terms of the contract such as monetary compensation, the time frame within which the work is to be completed, and the contract is applicable, additional clauses and stipulations and sign and date the agreement.
The contractual agreement should include the terms and conditions of the contract, such as pay, time frame, the process in case of breach (if needed), and any other additional clauses, such as an NDA or an exclusivity clause.
This largely varies from state to state. In general, however, independent contractors are different from employees in the sense that they are free to work in their place of choice, as well as according to their own hours or schedule (unless explicitly stated and agreed upon). Moreover, independent contractors’ only obligation is to complete the work within the agreed-upon time frame, meaning they are exempt from any company policy. They also have the right to pursue legal claims in case of breach of the contract.