If your business plans to work with an independent contractor, you need to understand how to draw up a contractor agreement. This agreement is legally binding and sets out what is expected of each party, making it a crucial document — especially if something goes wrong.
But what exactly should an independent contractor agreement contain? How can it protect your business? And, if you’re working with an overseas contractor, how does that affect the agreement?
In this article, we’ll explain how to create an agreement, and discuss what to include — and what to avoid.
So let’s dive right in.
As mentioned, an independent contractor agreement is a legally binding contract between an individual contractor and a company (i.e. your business). It outlines the key elements of the collaboration, such as:
It’s an important document for several reasons:
When it comes to independent contractors, different regions may have different laws and regulations, particularly in relation to things like taxes. For example, if you work with a US contractor — even if they’re not based in the US — you must fill out and submit a 1099 form to the Internal Revenue Service (IRS).
By having a formal, mutually-agreed agreement in place, both parties are clear about what their responsibilities are, and what their liabilities are.
If your relationship with your contractor starts to resemble an employee/employer relationship, you may create a misclassification risk. This can have serious consequences for your business, including penalties, fines, and reputational damage.
A formal agreement helps to avoid this. While different countries have different definitions of what exactly constitutes misclassification, you can protect both you and your contractor by outlining key areas of the working relationship such as:
Ensure that your agreement clarifies these expectations. For example, if you’re hiring an independent contractor to create a logo for your business, the agreement might state that:
To learn more about employee misclassification — and how to avoid it — check out our in-depth, expert guide.
In most cases, there’s no one-size-fits-all template for independent contractors. Standard contractor agreements depend on the nature of the business, the role the contractor is performing, and any local laws that apply.
However, there are several things that should always be covered in any contractor agreement, as follows:
Any independent contractor agreement should clearly state the beginning of the contract, the date of the agreement, and the identities of the two parties involved — including any relevant business details.
This section should clarify the legal relationship between the two parties as a client/contractor relationship, as opposed to an employer/employee one.
It should also clarify what will constitute the end of the agreement. Usually, an agreement is deemed to be complete once the contractor delivers the agreed-upon service or task, but it could also be a specific date, or conditional upon a particular event. Either way, make sure it is stated clearly in the contract.
In this section, you will need to lay out what exactly is expected of the contractor. The more detail you can provide, the better (although it doesn’t have to go into minute specifics about every facet of the job). For example, if you’re hiring a content writer for your company blog, it might be too vague to say:
“The contractor will write informative and entertaining articles for the client’s company blog.”
Instead, you might want to draft something like:
“The contractor will provide three, 2,000-word blog posts in line with the client’s company style guide (attached separately). Topics will be provided in advance by the client.”
This section will vary more than others, as it should be as specific as possible to each contractor and their respective subject matter expertise. In some instances, you may want to leave little room for interpretation from the contractor’s side. However, if you know and trust the contractor, you may be willing to provide more creative freedom.
Consider any variables unique to your business or the task itself, too. For instance:
Note that this section will usually take up the bulk of the agreement.
Your agreement should clearly state the terms and conditions of payment, including the following:
If required, your agreement should clarify how your contractor will be reimbursed for any expenses incurred, such as travel. If the contractor is managing a budget on your behalf (i.e. they are running PPC ad campaigns for your business), you should also establish whether the contractor requires pre-approval before spending.
Independent contractors are not employees, and so there is nothing stopping them from working with your competitors. As a result, you may need to insert a confidentiality clause (or similar) to protect your trade secrets and IP.
For instance, you may want to insert an exclusivity clause, which restricts the contractor’s ability to work with other parties during the contract period. However, the contractor is under no obligation to sign this, and may opt to refuse.
Alternatively, you can insert other confidentiality terms, such as:
Note that exclusivity clauses should be used with caution as, in many countries, they could be considered restrictive covenants and may be unenforceable if they are deemed to be in violation of antitrust laws.
IP is an important area to cover, especially if you are working with overseas contractors. This is because IP laws may differ in the contractor’s country, and leave you exposed to potential issues.
The ownership clause will outline the rights and responsibilities of both parties regarding any IP created during the project, including any patents, trademarks, copyrights, and trade secrets.
It should define the following:
IP law can be complex, so it’s a good idea to have your legal team review this section of the contract. If you don’t have an in-house legal team, Remote can help you protect your IP abroad.
This section of the agreement should clearly state that the contractor is responsible for filing and paying their own taxes and state contributions, as well as obtaining their own insurance and equipment. This is important for avoiding misclassification risk, and for complying with tax and labor laws.
If the contractor’s services involve some level of risk, requiring proof of liability insurance can help shield your company from potential lawsuits.
The agreement should also clearly state any liability that your business won’t be held responsible for, such as any damages or losses that result from the independent contractor’s actions or omissions. This can include liability for things like property damage, personal injury, or third-party claims.
Ideally, your contractor will deliver the agreed-upon service in the time specified, and everyone will be happy. However, this doesn’t always happen.
As a result, it’s a good idea to include a termination clause that defines the conditions and procedure for ending a contract early. Note that this can work both ways, and that the contractor may also want to include a termination clause.
A termination clause should include the following:
If your contractors are all in the same country as you, then it’s possible to use standardized agreements (although in some countries, such as the US, laws and regulations can still differ between individual states or provinces).
However, things are more complex if your contractors are based abroad — especially if they are spread across different countries. There are different tax and labor regulations to consider, currency and exchange fees to account for, and even potential language barriers.
This is why it’s recommended to use a contractor management platform, like Remote’s. We provide bilingual contractor agreements for specific countries, each of which are vetted by our in-country experts to be fully compliant with that country’s local tax and labor laws.
The platform also allows you to:
To hire an independent contractor, you must have an agreement that is robust, clear, and compliant for both parties — especially if they are based abroad. Remote can help you produce tailored, fully-compliant agreements quickly and easily, allowing you to focus on choosing the right contractor for your business.
To learn more about hiring, onboarding, and paying independent contractors, check out our in-depth, expert guide.
Alternatively, try our Contractor Management platform for free! Start your free 30-day trial here, and begin onboarding today.
Sign up with Remote for locally compliant contract templates at just $29 per contractor per month, with no hidden fees.
