Independent Contractor Agreements
As your business or nonprofit begins to grow, you’ll likely start thinking about hiring workers. Many small businesses and nonprofits try to hire their first staff as independent contractors rather than W-2 employees. But this can be a huge mistake if not done right!
So what is the difference between an employee and an independent contractor?
When you hire an employee, you control not only what the worker will be doing, but also how they will do it. But when you hire an independent contractor, you only have the right to control or direct the end results of their work. In other words, are you paying the worker to perform a list of duties and responsibilities (an employee), or are you paying them to accomplish a result (an independent contractor)? Unfortunately, like most areas of law, the answer to the question “Can I hire this particular worker as an independent contractor?” is “It depends on the specific facts of your situation.” There are a number of factors that need to be considered when making this decision.
Do I need a contract to hire an independent contractor?
One of the factors that the law considers when determining whether a worker is an employee or an independent contractor is whether there was a written agreement that identified the worker as an independent contractor. So if your business or nonprofit hires 1099s, then yes, you should have a written contract with those workers (or preferably with their business entity).
What should be in my independent contractor agreement?
An independent contractor agreement is a business contract that spells out what the independent contractor must do, how and when they will be paid, and (if properly drafted) provides other details that justifies classifying the worker as an independent contractor rather than an employee. For example, well-drafted independent contractor agreements often emphasize that the company hiring the contractor is only interested in the end results and not how the contractor reaches those results. The contract will often point out that the contractor is responsible for providing their own tools and equipment. Or it will remind the contractor that the company will not be paying taxes or providing insurance for the contractor.
Our business attorneys see lots of poorly drafted independent contractor agreements, especially internet form templates, that don’t properly protect your business interests. (On the other hand, if you are an independent contractor, many of these bad contracts don’t protect your ability to get paid or protect the intellectual property you create.) A good contract is clear about what the independent contractor must do to get paid and when payment will be made. It should also be clear about what happens if the independent contractor doesn’t finish the job or does a poor job.
Bad template agreements also make blanket assumptions about confidentiality and work product that often don’t make sense when you really think about your particular situation. Rather than sticking to internet boilerplate language, our business attorneys take the time to help you identify confidential business information and unique deliverables and point out the best ways to protect that information.
Read more about Bad Contracts: Red Flags to Watch For