What Is an Independent Contractor Agreement?

Chicago Business Lawyer Explains Considerations for Hiring Contractors

Independent contractors are not true employees of your business; instead, as the name suggests, you hire a contractor according to specific conditions in an agreement or contract. Usually, you hire an independent contractor to perform a specific job for a limited period of time. Once the terms of the contract are met, then the relationship between the contractor and your company ends. Since contractors are not legally employees, your business will not be responsible for payroll taxes or providing any other benefits, such as sick leave, vacation days or unemployment. Therefore, it is essential that your independent contractor agreement is comprehensive.

A business contracts lawyer from LAD Law Firm, P.C. can assist you in creating your contractor agreement. An attorney can draft and review your contract to ensure it is legally enforceable. Additionally, a lawyer may bring up certain issues you have not considered. If you are facing a lawsuit from a contractor, then we may be able to help you use your agreement to defend your business assets.

What Is the Difference Between Independent Contractors vs Employees?

State and federal laws contain certain provisions regarding what kind of worker may be classified as an independent contractor. This distinction usually depends on the nature of the work, the amount of oversight and the financial concerns. Generally, the characteristics of an independent contractor include:

  • Behavioral independence. In many cases, the employer will specify what work an independent contractor must complete, but the contractor will have the freedom to decide how to meet these goals.
  • Responsibility for expenses. Depending on the business contract, the contractor usually pays his or her own work-related expenses.
  • May work for multiple companies. Often, a worker may contract with several different clients or companies at once, performing similar work. However, this is not always the case.
  • Provides own equipment. Companies usually hire independent contractors for their specialized skills, so the contractor may provide his or her own tools.
  • May be paid by the job, or on an hourly or salaried basis. The payment of contractors depends on the specifics of the independent contractor agreement. Additionally, contractors generally do not receive overtime payments.
  • Not covered by labor and employment laws. Since contractors are not employees, most employment and labor laws do not apply to them. For example, minimum wage standards and overtime payment requirements do not extend to independent contractors.
  • Usually no income tax withholding. Contractors pay their own self-employment taxes, whereas employers withhold taxes from employees’ paychecks.
  • No employee benefits. Contractors generally do not receive sick or vacation leave, retirement contributions, health insurance or any other benefits.
  • May perform work that is different from the employer’s work. You may hire a contractor to perform a service that is independent from the work you and your employees do. However, you can hire a contractor for a set period of time instead, such as for seasonal work.

What Should I Include in an Independent Contractor Agreement?

Your independent contractor agreement should clearly define the work the terms of the contractor’s work. This includes his or her obligations and rights as well as yours as the employer. A well-written contractor agreement usually contains:

  • Description of services. Clearly state the work that the contractor must complete, including any specific tasks and procedures. This may vary greatly, depending on the person’s specialty and your business needs.
  • Terms of payment. Include a statement about the payment schedule and terms. For example, you may pay the contactor for services rendered once the work is complete. Otherwise, the contractor may invoice you on a certain schedule for hourly work.
  • Provisions for expenses and materials. Include information about whether you will reimburse the contractor for expenses and materials. If you will, then include details on determining these costs.
  • Statement of tax arrangements. State that the contractor is responsible for paying his or her own income taxes.
  • Time period for the agreement. Depending on the circumstances, you may include the total time period the contract will last for ongoing tasks. If you hire a worker for a specific job, then you may include a deadline for the completion of the task.
  • Circumstances for termination of the contract. You may wish to reserve the right to end the contract at any time. Usually, the independent contractor also has this right.
  • Provisions for dispute resolution. It is generally a good idea to include some procedures for dispute resolution, which can help you avoid costly legal battles, in some cases. For example, you and your contractor may agree to settle legal disputes through mediation, should difficulties later arise.

Hiring an Independent Contractor? A Chicago Business Contracts Lawyer Can Help

Hiring independent contractors can be confusing, especially if you are a new business owner. At LAD Law Group, our Chicago business attorneys offer a complete range of legal services to small businesses – including the drafting and review of employment agreements. A business contracts attorney can help you protect your business from liability and craft a workable independent contractor agreement.