The term ‘independent contractor’ is used widely. Ensuring you have carefully written contracts, can go a long way toward protecting a business as well as the independent workers they hire.
Should a business desire to hire an independent contractor, it’s important to draft an agreement in writing. Some of the most important items to consider when drafting an independent contractor agreement include:
1. Parties Who Are Involved
Contracts must clearly state the names of all parties involved in the agreement, including all employees of the independent contractor who will participate in the work. This can be complicated if the primary contractor also collaborates with other self-employed individuals, but a skilled contract lawyer can work out the details.
2. Nature of the Work to Be Performed
One of the first provisions contained in an independent contractor agreement should be a statement by both parties detailing what is required and expected of both sides. For instance, a business could agree to pay a contractor for a particular service, and the contractor could, in turn, agree to provide the work by a specific time and under certain conditions.
Additionally, the nature of the work performed by the contractor should also be specifically detailed, including exactly what duties the contractor is responsible for. For example, it’s best to avoid ambiguous descriptions such as “social media marketing” and provide a detailed list of tasks and projects the contractor will complete.
Note that simply providing the contractor with a 1099 Miscellaneous Information tax form is not the same as signing an agreement. Protecting all parties with a well-written contract is the surest way to protect everyone’s legal and business interests.
3. Contractor Status
Under both federal and Texas law, an independent contractor is classified differently from employees. They perform services under an express or implied contract and are free from control or direction by a business. They set their own hours and schedule, use their own tools, and complete the tasks in the manner their experience indicates is best. While the contract may state requirements as to the final product or service, the “how” of accomplishing it is in the hands of the independent contractor.
When creating an independent contractor agreement, it is of particular importance to clearly define the worker as an independent contractor in writing so they cannot be mistaken for an employee. The agreement should enumerate the contractor’s rights, including the ability to perform services for others unless these services directly conflict or compete with their work for your business.
Additionally, an independent contractor agreement should state whether or not the contractor must do the work themselves or if they have the option to hire others to do some or all of the work.
4. Payment
This agreement must clarify that payments made to the independent contractor do not include income or payroll tax withholding. In Texas, an employer is not obligated to pay unemployment taxes for independent contractors. Contractors must pay income taxes, sales taxes, Social Security, and Medicare taxes as self-employed individuals. In certain instances, employers can require independent contractors to provide proof of these payments.
The contract should also clearly state the terms of payment, such as paid upfront, at intervals, or upon completion of specific tasks. There should be details on any deposits required to initiate services.
5. Expenses
An independent contractor agreement must explicitly state what expenses the contract worker is responsible for. Typically, an independent contractor is responsible for all their expenses, such as mileage, vehicle maintenance, and other necessary travel-related costs.
In addition, contractors are usually considered responsible for supplying their own work supplies and tools, licenses, fees, permits, phone and Internet expenses, and payments to subcontractors. Variances from these general expectations should be explicitly described in the contract.
6. Benefits
While it may seem clear that contract workers are ineligible for certain benefits afforded to employees, it should still be explicitly stated within an independent contractor agreement. This should include everything from retirement benefits to health insurance, vacation and sick leave, and other benefits provided by an employer.
This is the same for insurance as well, as businesses are not required to provide liability insurance, auto insurance, or any other insurance coverage for independent contractors. Depending on the work being performed, a contractor could be required to provide proof of business liability coverage. In some instances, an independent contractor can be required to indemnify the company should injury or loss occur.
7. Expectation of Confidentiality
Independent contractors may be given access to sensitive or proprietary information as part of their work. With this in mind, every contractor agreement should address the expectation of confidentiality to protect all parties. Non-disclosure clauses prevent third-party contractors from sharing information publicly or on other contracted jobs under threat of legal action for breach of contract.
8. Termination
While most projects will run smoothly and end according to the agreed-upon timelines, it’s beneficial to include clauses outlining termination options. Contracts can allow either party to end the agreement in certain circumstances. The employer may also want to provide itself the option to terminate the contract in the event of a breach or failure to deliver.
Contractors will often request a clause giving them the right to terminate if they aren’t paid within the terms and deadlines stated in the agreement. Careful review by a Houston contract lawyer can avoid “what now?” questions regarding ending an agreement before its course is run.
9. Jurisdiction of Governance
Even if the employer and independent contractor are both based in Texas, it’s highly critical to include the state or jurisdiction of governance for the contract. This establishes which laws will apply in the event of breach, dispute, or untimely termination. It can be very detailed, down to the county or local jurisdiction, or as simple as stating all parties will adhere to the laws of Texas and the United States of America.
As with all matters, a reputable Houston contract attorney can include language in an independent contractor agreement that protects everyone’s interests and rights.
10. Signatures of All Parties
While it may seem a given that everyone needs to sign, it’s surprisingly easy to overlook this simple step when rushing to complete contracts and get work started. Every party that is named and involved in a contract must provide their legal signature, electronically or in person, for the contract to be legally binding and valid.
Without this step, any contractor could have a legal loophole to evade litigation if they fail to provide the work listed. All signatures indicate that all parties have read and understand the agreement and will abide by the terms. In a court of law, this can mean the difference in whether a contract is upheld in your favor.
Additionally, any changes to the original agreement in terms of scope, tasks, pay, or other details should be updated and signed again by all parties in an addendum. It is always better to be safe than sorry in matters of contract law.
Get Experienced Legal Help With Your Independent Contractor Agreement
There are many complexities involved when it comes to business contracts. Contracts can allocate risks, benefits, liabilities, and more between the parties involved. Properly drafted contracts are crucial should a dispute occur and if liability must be determined.
At Feldman & Feldman, our Houston contract lawyers have extensive experience drafting, negotiating, and revising all types of contracts. No matter if a client is presented with a contract that needs reviewing or needs a contract drafted from scratch, we can help. Contact us today to see how we can best serve your independent contractor agreement needs.