Independent Contractor Agreement


Overview
- The Independent Contractor Agreement is used when a company wants to retain a consultant to provide services to the company for a limited period of time.
- It is important to clearly define whether someone is an employee or a consultant.  The appropriate written agreement can help establish a worker as an independent contractor and save money on administrative expenses and additional taxes, penalties and interest.
- In an Employer - Employee relationship, the Employer typically provides benefits packages, and there is some understanding that the employee will be retained indefinitely.  The employer will also be subject to various federal, state, and local laws regarding employment and dismissal.
- In an Employer - Consultant relationship, the Employer generally does not provide benefits, and the length of the consulting arrangement is laid out in a contract, with a definite starting and ending time.
- There are also significant tax differences between employees and consultants.  Among other obligations, employers are required to deduct and withhold income tax on wages paid to an employee.  If an employer fails to deduct and withhold tax, but the employee pays his income tax, the employer is not liable for the income tax.  However, the employer remains liable for penalties for failure to deduct and withhold.
- Under the common law, a person is an employee if a certain level of control of the person's activities is present.  Both employees and consultants have projects dictated to them by the employer; the difference is that an employee is told not only what to do, but how to do it.  Consultants are typically told what to do, but have much greater freedom to determine how the actual work is done. 
- Classification of an individual as an "employee" or "independent contractor" is critical.  While the ultimate classification is a matter of common law, the Internal Revenue Service has established tests to help determine the proper classification.  Consult a tax and/or employment attorney if you have concerns about whether the individual or company is truly an independent contractor.

When You Need It
- To hire a contractor to perform consulting and other types of services for a limited period of time.   
- Do not use this agreement when hiring regular employees.


Getting Started

You will need:
- Name and full address of the individual or company who is acting as Consultant.
- Name and full address of the individual or company who is hiring the Consultant.
- Details about the products and/or services to be provided by the Consultant, including services to be provided, payment terms and completion dates.

When to Review and Revise 
- To change conditions or terms of the Agreement before it is signed.
- To change conditions or terms of the Agreement after it is signed.
- To document a new independent contractor relationship.