The 5 Most IMPORTANT Components of Every Simple Contractor Agreement

A simple contractor agreement is an easy way to establish the important details of a business deal with an independent contractor.

In fact, while not legally mandated, this agreement could end up saving you and your business from a tax or employment-related lawsuit.

That being said, if you’re looking for protection from potential lawsuits, you should make sure you’re using a contractor agreement that includes at least the five following components:

DEFINITION OF INDEPENDENT CONTRACTOR

Perhaps the most important aspect of working with a freelancer is understanding how employment law impacts the business you conduct together.

In fact, before hiring any kind of gig worker, it’s important to ensure they are legally considered contractors or freelancers. You can find the required qualifications on the IRS website.

The IRS makes the important distinction between contract and full-time workers not only for tax reasons, but also to ensure employees are receiving the proper benefits based on the work they’re doing.

Furthermore, California’s AB5 law takes this initiative to the next level. More specifically, the AB5 law requires that gig workers pass the “ABC” test in order to qualify as non-employees:

The contractor must be free from the control and direction of the hiring party

The contractor’s work must be outside the normal course of business of the hiring party

The contractor must be engaged in the same type of work as an independent trade outside of working with the hiring party

Therefore, whether you work in California or not, your simple contractor agreement should ALWAYS include a definition of your relationship with the freelance worker.

DESCRIPTION OF EXPECTED PRODUCT

While the definition of an independent contractor states that their work cannot be controlled by the hiring party, you obviously have the right to get the final product you’re looking for!

Thus, the simplest way to ensure you and your gig worker have an understanding of your expectations is to write it all down in the contractor agreement.

For example, if you are hiring a freelance writer to write an ebook for your website, topic, page and word count, necessary citations, graphics, and layout are all acceptable guidelines to provide.

Remember that the lack of “control” you have over your contract worker does not mean that you cannot get the product you’re looking for.

Instead, you must simply avoid mandating the time, place, and method in which the freelancer works!

PAYMENT AMOUNT AND METHOD

Of course, you should always determine the amount you’re paying your contractor before starting a business deal. However, this is also an important piece of information to include in your written agreement!

While this fact may seem obvious, some people tend to forget to include in their document the method by which they’ll be paying their independent contractor.

For example, some freelancers will refuse to accept payment via PayPal, as the website usually takes a percentage of the transaction.

On a similar note, paying via direct deposit will end up costing you $50-200 to set up your account plus a monthly transaction fee. Therefore, you will want to do your research before agreeing to one specific form of payment.

Furthermore, you may want to provide payment at different steps of the process. For instance, you may choose to provide compensation at the beginning, middle, and end of one long project.

Finally, be sure to include a statement detailing any penalties for unfinished work or missed payments, if applicable.

TERMINATION CLAUSE

Termination of your contractor agreement can occur if one party fails to upkeep their side of the contract. This potential end of contract should be outlined in your provisions.

More specifically, your simple contractor agreement should list the possible circumstances under which the parties have the right to terminate the relationship.

For example, you may choose to identify a timeline in which the final product is expected. Failure to follow this timeline could result in automatic termination.

Additionally, your termination clause should identify how final payment will be handled should premature termination occur.

Hopefully, your project will run smoothly and you will not have to reference these terms after the initial agreement. However, it’s always important to outline a plan for a business deal gone wrong just in case.

NON-DISCLOSURE AGREEMENT (NDA)

If the project for which you’re hiring a freelancer involves any confidential information about your company or personal life, it’s imperative that your contractor agreement include an NDA.

For example, if the independent contractor will be utilizing company usernames and passwords, an NDA will be essential in ensuring that information remains private.

Furthermore, you may want to outline how and where confidential information will be stored and utilized. For instance, a Google Doc listing the company’s social media passwords may not be the best management system.

Finally, your NDA should provide applicable penalties for non-adherence to the policy.