How to Write an Independent Contractor Agreement

Today’s workforce is becoming increasingly diverse, with various worker types playing a more prominent role in companies of all sizes. For example, independent contractors make up around 15% of the workforce in the United States alone. As your business expands beyond borders and boundaries, adding independent contractors to your workforce is key to an effective global expansion strategy. 

Let’s explore how to write a clear and compliant independent contractor agreement — and how an Employer of Record (EOR) solution can help you hire employees and independent contractors anywhere, without setting up an entity.

What is an independent contractor agreement?

An independent contractor agreement is a legally binding contract between an individual contractor (or the contractor’s own business entity) and a company. An independent contractor agreement clearly outlines the scope of work and the terms under which the contractor will perform services. 

How are independent contractors paid? What elements should be included in a contractor or freelance agreement template? A comprehensive independent contractor agreement should specify project requirements, payment methods and terms, confidentiality provisions, important timelines or milestones, termination terms, and any other relevant details related to the contractor’s specific services. 

When do you need an independent contractor agreement? In some countries, a written contract may not be required, and a verbal agreement may constitute a binding contract. However, we recommend putting in place a strong, written independent contractor agreement to protect the interests of your company. 

What should be included in an independent contractor agreement?

Key components of an independent contractor agreement usually include scope of work, payment terms, deadlines, relationship of the parties, confidentiality, assignment of intellectual property, and termination terms. 

Every independent contractor agreement is different, and a company will have varied needs depending on the project. With that in mind, every independent contractor contract example

 should include a few essential elements to be strong, comprehensive, and protective. What’s the best way to fill out an independent contractor agreement? Let’s take a closer look at what a strong independent contractor agreement contains.

1. Identify the working relationship.

Any legally binding agreement should identify the hiring party (client or company) and the independent contractor by their full legal name and contact information. A basic independent contractor agreement should also clarify the working relationship. The agreement should clearly outline the status of the professional as an independent contractor and not an employee of the company.  A strong contractor agreement should detail that the contractor has the ability to control and direct the manner, time, method, and place in which the services will be performed.

2. Clearly define the scope of work.

A strong independent contractor agreement specifies the nature of the work to be performed. Be sure to list the specific tasks and deliverables, project timelines, and milestones that are required of the particular project or services. 

3. Specify what benefits, if any, the contractor will receive.

Generally, independent contractors are not entitled to benefits. By clearly stating that the contractor is not eligible to participate in or entitled to any benefits that your company may provide to employees, you can protect your business from potential liabilities. In the United States, for example, most written contractor agreements stipulate that no specific benefits are offered.

4. Clarify payment terms and tax obligations.

Be sure to outline payment terms and tax responsibilities of the parties. If your contractor will be performing their services in another country than where your company is located, be sure to specify the compensation amount in the applicable currency. Outline payment terms, including whether the contractor will be paid per hour, per project, or at certain milestones, and whether the contractor needs to submit invoices to your company. 

Independent contractors are generally responsible for their own taxes, so it is important to highlight that the company will not be responsible for any tax withholdings or for making any income, payroll, social, or insurance contributions.

5. Assign intellectual property.

Be sure to specify ownership of any work product or intellectual property that the contractor may create during the relationship. In an employment relationship, intellectual property is often assigned automatically by law to the employer. In an independent contractor relationship, you will need to include explicit provisions in the contract assigning the deliverables, work product, and intellectual property rights created by the contractor to your company. 

6. Include confidentiality clauses.

Include terms and conditions to protect confidential information shared during the course of the project. Non-disclosure provisions or confidentiality clauses are key to protecting any sensitive information or trade secrets of your company. 

7. Add liability and indemnification language.

You may want to consider adding liability and indemnification terms to your contractor agreement. These provisions allocate responsibility for certain risks and liabilities between the parties.  A common indemnification provision in a contractor agreement protects the company from IP infringement claims arising out of the company’s use of the deliverables or work product from the contractor.

Other provisions can relate to taxation, or claims of injury of a person, or damage to property as a result of the action of the independent contractor. Companies can also require contractors to maintain liability insurance. 

8. Address exclusivity and other activities.

A common factor of an independent contractor relationship is that the contractor may perform services for other companies while providing services to your company. 

Non-compete restrictions are generally not enforceable with independent contractors. However, you can include a clause to restrict the contractor from working for other companies during the contract period if it would conflict with the contractor’s obligations in your independent contractor agreement. 

9. Include a termination clause.

Add a section that clearly outlines the specific conditions under which either party can terminate the agreement, including what kind of notice each party must provide and payment terms upon termination.  Unlike employees, independent contractors are not entitled to any termination compensation, like severance.

10. Specify governing law.

If your company is operating in another country, be sure to specify which jurisdiction’s laws will apply to disputes relating to the contract. A dispute resolution clause can also provide clarity around how disputes are handled, including whether the parties agree to third-party mediation services.

While this is a basic outline, be sure to have a legal professional review, approve, or customize your contract depending on your specific needs. It is important for both parties to carefully review and understand the terms of an independent contractor agreement before signing to ensure that all rights and responsibilities are clearly defined and protected. 

Why do companies need independent contractor agreements?

Contractor agreements are important because they define the company-contractor relationship and outline clear expectations for the project. 

Some key benefits include:

• Clarity on work scope. The agreement clearly outlines the specific services to be provided by the contractor. Writing a formal independent contractor agreement helps you communicate clear expectations and enhance clarity in your business partnership. For instance, one of the main advantages of independent contractor agreements is that they distinguish your contractors clearly from employees. This distinction clarifies what you do and do not owe contractors and helps everyone understand the terms of the relationship.
• Flexibility. Independent contractor agreements offer flexibility for both parties in terms of location of work, project timelines, and work hours.
• Legal protection. A well-written independent contractor agreement helps protect both parties from a legal standpoint by clearly defining relevant rights and responsibilities. A solid agreement in place can also relieve the company from liability if the working relationship proves to be a poor fit.
• Streamlined payment process. How do independent contractors get paid? Unlike full-time employees, contractors send you an invoice that must be reviewed and approved before you can make a payment. Not having to manage payroll responsibilities such as tax withholdings or benefits can significantly lighten your administrative burden. However, processing relevant invoices requires careful oversight to prevent underpayment, overpayment, or payment for unapproved work.
• Better bottom line. In some cases, it can be more cost-effective for businesses to hire independent contractors for specific projects. Not having to provide benefits such as health insurance, paid time off, or retirement plans can help your bottom line. A strong independent contractor agreement can clarify expectations and help avoid misunderstandings, reducing the risk of contractors later claiming they should have received certain employee benefits.
• Lighter administrative load. Hiring independent contractors can reduce your company’s administrative burden, as contractors are responsible for their own taxes and insurance. Not sure where to start? With G-P Contractor™, you can engage and pay independent contractors in 180+ countries, quickly and easily.

Who qualifies as an independent contractor?

It is key to understand the difference between independent contractors and employees to maintain compliance. After all, between 10% to 30% of employers misclassify their workers as an independent contractor in the United States alone. 

Independent contractors perform specific services for a business or organization, but they are not considered employees; however, classification criteria can vary depending on the country and local laws. 

In general, some key factors to consider include:

• Autonomy. Independent contractors typically have control over how, when, and where they perform their work. Generally, full- or part-time employees are subject to a significant degree of company oversight and control, impacting the work they do and how they do it. Contractors, on the other hand, provide services and have more autonomy over how they work.
• Benefits. Companies are usually legally required to offer certain benefits to employees that can vary by country, such as health insurance, paid holidays, vacation days, sick leave, and maternity or paternity leave. Contractors do not receive these benefits and must either forgo health insurance or purchase their own. 
• Payroll taxes. Rather than receiving a regular salary or hourly rate, subject to various tax withholdings, independent contractors are usually paid on a per project basis. They are responsible for withholding their own income taxes according to local regulations or government law. 

Be sure to consult with a legal or tax professional to determine the specific qualifications for an independent contractor status depending on your unique needs.

Draft compliant independent contractor agreements with G-P Contractor.

Clearly outlining the terms of service, scope of work, and details of any contractor relationship is essential. A strong contractor agreement must align with country-specific regulations, and with our Contractor product, you can choose from our automatically generated, compliant contracts or easily edit and implement contracts of your own. 

G-P makes it fast and simple to engage and pay contractors in your choice of currency, create automated invoices, build custom reports, and track payments — in just a few clicks. Accelerate global business success today with G-P.