The term ‘independent contractor’ is used widely; from popular ridesharing platforms to food delivery apps and many other services, contract work has become particularly popular when it comes to employment. With the increase in use of contract workers, it’s important for those considering hiring an independent contractor to know what should be included within an independent contractor agreement.
Understanding Independent Contractors
While it might be easy to assume that being an employee and an independent contractor are the same or similar, this isn’t the case. In most cases, independent contractors are considered to be self-employed, providing goods or services under a specific written contract. Unlike employees, independent contractors only work for an employer as defined within the scope of a contract.
A person is generally considered an independent contractor if the payer or business only has the right to control or direct the results of the work and not what will be done and how it will be done. As such, independent contractors must pay self-employment taxes because businesses are not responsible for withholding anything from payments made to them.
Independent Contractor Agreements
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:
The Nature of the Work Performed
One of the first provisions contained within 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.
When creating an independent contractor agreement, it is of particular importance to clearly define the worker as an independent contractor in writing so he or she 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.
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.
An independent contractor agreement must explicitly state what expenses the contract worker is responsible for. Typically, an independent contractor is responsible for all expenses, such as mileage, vehicle maintenance, and other necessary travel related costs. However, work supplies and tools, licenses, fees, permits, phone and Internet expenses, and payments to subcontractors could also be expenses the contractor is responsible for.
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.
Houston Contract Drafting Attorneys
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/or if liability must be determined. At Feldman & Feldman, our Houston business attorneys 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 help you.