Essential Components of an Independent Contractor Agreement
Tips for putting together a Freelance Contract Agreement
What is an independent contractor agreement, otherwise known as a freelance contract agreement? Let’s imagine … there is a ton of work to be done, and a freelancer said that he or she can help you with this particular project. You’ve established that she or he can be hired as an independent contractor versus an employee. You can’t wait to send off the background info and kick off the project to take that load off of your shoulders ASAP. What a relief!
Unfortunately, what you agreed on Slack, via email, or via text can be lost in translation or even forgotten, and lead to misunderstandings and unfortunate surprises (i.e., failure to deliver services or problems that arise during the working relationship). Plus, it is not enforceable.
What could you do to prevent this from happening?
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Have a Fully-Executed Independent Contractor Agreement (Freelance Contract Agreement)
An independent contractor agreement (otherwise known as a freelance contract agreement), once fully-executed with signatures from client and freelancer, is a legally binding document. This document is an agreement between the independent contractor and the employer on the terms of the work and deliverables.
Many working relationships go without any issues. However, without having a contract in place, you (as the employer) open yourself up to potential misunderstandings — misunderstandings that can have far more costly consequences than the time and money you would spend setting up a Freelance Contract Agreement.
In fact, the simple act of signing a contract agreement often makes a person feel more accountable to fulfill his/her obligations.
So what exactly is an Independent Contractor Agreement (Freelance Contract Agreement)?
An independent contractor agreement clearly and specifically outlines exactly what the working relationship entails and the end product(s) that are expected from the independent contractor, and it does it in a legally binding manner.
What sections should an Independent Contractor Agreement (Freelance Contract Agreement) have?
There are several essential sections and items that the independent contractor agreement between a client / company (the employer) and the independent contractor must include. We’ll go over them below.
Every independent contractor agreement / freelancer contract agreement should start with an introductory paragraph. This section should describe the parties (the employer and the independent contractor / freelancer) that enter into the agreement. It should state the full names of each party (again, the employer and the independent contractor / freelancer), the date that the parties enter into the freelance contract agreement, and the physical address of each party. These are important so that the agreement is specific to the parties.
Engagement and Services (Scope of Work)
After the introductory paragraph, there should be a section about engagement and services. This is usually one of the most important parts of an independent contractor agreement / freelance contract agreement. This section is where the services (Scope of Work) are described in detail. In addition, it should list the duration of the engagement and the timeline of deliverables or milestones.
The purpose of this section is to clearly state the expectations of both parties. The more detail included, the fewer potential misunderstandings that could occur.
For example, if you want to review the deliverables midway through the project, state that in this section. If you’d like to see an outline or draft report, or a list of sources, include that in this section. And clearly list the timeframe in which you expect the freelancer to submit these items.
And be sure to describe in detail your expectations for the deliverables. If you need the word count to be within a specified range, or you need a specific resolution image, or a certain file type, say so.
Lastly, read this section of your independent contractor agreement / freelancer contract agreement carefully and think about any potential misunderstandings that might occur. Then, add language to clarify those potential problems.
Need some concrete examples of how engagement and services might be listed in an independent contractor agreement / freelance contract agreement?
Here are two Scope of Work (SOW) examples, one for content writing and another for competitive market research.
This might be an SOW that might be used with a content writer:
After reviewing our brand guidelines and style guides, the Freelancer shall write a five hundred word blog post on the topic of “How to find new clients”. Within two (2) days of project acceptance, the Freelancer shall submit an outline of the topic in a Google doc file. The post should be submitted to Client within five (5) days of project acceptance and should be completed in the same Google doc file. One round of revisions will be included.
And here is an example of an SOW that might be used for competitive market research:
Research client’s competitors and compare them in a Google spreadsheet file. Freelancer shall research a minimum of ten (10) competitors, Within two (2) days of project acceptance, the Freelancer shall submit via email a list of competitors that freelancer intends to research. Client shall review this list within (1) day and provide feedback to freelancer. Within five (5) days of project acceptance, Freelancer will submit a Google sheets file with the list of competitors along with the attribute that will be compared. Client shall review this file within (1) day and provide feedback to freelancer. The completed Google sheets file will be submitted to Client within ten (10) days of project acceptance. Two rounds of revisions will be included.
Note the specificity in each example SOW.
The more detail included in the Scope of Work, the more you protect yourself against costly misunderstandings.
After the introductory paragraph and engagement and services sections, you should have a section on compensation. This part of the independent contractor agreement / freelance contract agreement is often all that novices include in an informal agreement. This section should discuss whether the freelancer is paid a flat fee or an hourly rate. It should also include information on how and when payments will be sent, whether invoices must be submitted, how those invoices will be submitted, and whether the client or freelancer will create such invoices.
Sometimes, it also includes additional compensation information on bonuses. For example, do you want to incentivize your freelancer with a bonus for early completion?
The purpose of this section is generally to protect the freelancer’s time and make the freelancer feel more comfortable with starting a large project.
Note that this section of the independent contractor agreement / freelance contract agreement should not state that you will reimburse the freelancer for expenses. This is is because who pays for expenses is an important factor in classifying someone as an employee or an independent contractor / freelancer.
A kill fee is sometimes included in independent contractor agreements / freelance contract agreements. A kill fee is a fee that the employer pays for a canceled project or work on which the independent contractor has already started work and beyond the independent contractor’s control.
A situation where this might be enacted when a content writer submits a piece that a publisher has to cut due to space constraints, or if a client decides to cancel a new product partway through a market research project for a new product.
Terms and Termination
So far, we’ve covered the introductory paragraph, engagement and services, compensation, and an optional kill fee. Next in the independent contractor agreement / freelance contract agreement is a section of terms and termination. This is usually legal language provided by a company attorney.
The important part of this section to note is the termination notice clause. This clause describes how, when, where, and to whom notices must be delivered to terminate the contract (i.e., a 14-day written notice to the CEO at CEO@COMPANY.com).
No one ever expects or plans to terminate an agreement. But unexpected circumstances can lead to a desire to end a project (or worse, end a relationship with a freelancer); this section is where you’ll turn if that happens.
The confidentiality section of the independent contractor agreement / freelance contract agreement states the terms under which the freelancer is to keep the employer’s company information confidential. This could include industry and company secrets, trademarks, and business strategies depending on the language of this section. This section is crucial to keeping your business information private.
Intellectual Property and Ownership
This section of the independent contractor agreement / freelance contract agreement describes the ownership of intellectual property such as the copyrights of products or inventions created during the working relationship. If you want to own the work created by the freelancer / independent contractor, your agreement should explicitly state that.
Exclusivity. In addition, a freelancer / independent contractor works on projects for various employers and companies, while a (full-time) employee generally performs work for one employer.
This section is another legal section. The key components here are about agreement and choice of law / dispute resolution. There’s usually a paragraph that states that the agreement represents the entire agreement between the parties and no oral promises are part of the contract unless specifically included herein. The Choice of Law/Dispute Resolution clause outlines the state in which the jurisdiction will govern and enforce the agreement and also outlines procedures in the case of legal action.
In some cases, companies may choose to state that arbitration or mediation is the first required step before legal action is taken.
You never expect to be sued or expect to file a lawsuit, but it’s in your best interest to ensure that any legal action would occur in your preferred legal jurisdiction (usually where you are physically located). And some companies prefer mandatory arbitration as they feel that lowers the legal costs of any potential legal action.
Even if you have an excellent independent contractor agreement / freelance contract agreement written by a top-notch attorney, it doesn’t become legally binding until this section is complete. Authorized signers for each party must sign, date, and list their titles to fully execute the legal contract.
Again, without completing this section, the independent contractor agreement / freelance contract agreement is not a legally binding document. That means the contract could not be legally enforced. E-signatures are acceptable, but simply emailing your freelancer a copy of your freelance contract agreement is not enough.
You must have your freelancer sign (or e-sign) the agreement!
In conclusion, Independent Contractor Agreements / Freelance Contract Agreements legally and clearly define the working relationship between an employer and an independent contractor.
Note, we are not providing legal, tax or payroll advice. Please consult your legal, tax and payroll professionals. These are simply to serve as guidelines based on our own experiences.
Freelance contract agreements / independent contractor agreements should be carefully reviewed before presenting to an independent contractor / freelancer. Please contact an employment attorney for additional insight.
Still feeling overwhelmed? Liquid users can use our pre-existing templates for freelance contractor agreements. We make it easy to onboard, manage, and pay freelancers / independent contractors. Try Liquid today!
Category: Freelancer Management
Updated: July 13, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.