If you work in the online business world, you likely work as or with independent contractors. (If you aren't sure about the difference between an independent contractor and an employee, check out this post.) Whether you are the independent contractor or you are hiring a contractor, you need to ensure that you have a solid contract to define your relationship.
Don't let this happen to you!
Here are five must-have terms for your independent contractor contract.
Independent Contractor Status
Any agreement for an independent contractor should clearly define the contractor's status. This may seem like a no-brainer, but what should it look like?
We recommend that you include that the party will be an independent contractor and is responsible for payment of all taxes. This may also include who is responsible for providing materials/equipment, an acknowledgement that the contractor is not eligible for employee benefits, and whether or not the contractor is responsible for payment of expenses.
Payment Terms
Your agreement should specifically state how and when the independent contractor will be paid.
Be sure to include:
- The amount to be paid
- How the contractor will be paid
- Whether an invoice is required prior to payment
- The payment timeline
For an independent contractor, payment is usually handled in one of the following ways:
- Flat fee for the full project or for achievement of certain phases of the project
- Time-based, such as hourly or monthly
Tip: Remember, an independent contractor is not an employee and is typically not a salaried position. The independent contractor is also responsible for payment of all taxes, so payment will be made in full, without deductions for any taxes or employee benefits.
Termination Provisions
Ensure that your agreement has clear termination provisions. Ideally, if the project goes well, you won't need to exercise this clause, but it is better to be prepared with a specific clause, just in case you need it.
At minimum, your termination provision should include:
- Who may terminate – Make sure it is specific as to whether both parties have the right to terminate.
- How to terminate – What process needs to be followed before terminating? Does it need to be in writing/via email?
- When to terminate – How much notice is needed before the termination becomes effective?
- Payment – How is the payment handled if the agreement is terminated? Typically, the contractor will be paid pro rata, which means paid for the work completed until the termination is effective, but this should be specifically stated.
Confidentiality
Most independent contractor agreements will have a confidentiality provision. The key for a good confidentiality provision is to ensure that both parties know exactly what is covered so there are no surprises or accidental disclosures.
If the contractor will receive access to any company logins, it is especially important to discuss how this information should be stored and used. We see this most frequently in the case of Virtual Assistants and Social Media Managers.
Tip: If the contractor will receive company logins, keep track of what logins you are giving. In the event of a termination, ensure any passwords are easily accessible and changed.
Restrictive Covenants
An independent contractor can agree to a restrictive covenant, such as a non-compete or a non-solicitation provision. In order to be enforced, these provisions must be reasonable.
Typically, in the online business world, we see these provisions used when a company is working with subcontractors who work in a similar field. For example, if you own a Virtual Assistant company that hires other virtual assistants to subcontract for specific products, the contract may contain restrictive covenants to ensure that the subcontractor does not try to solicit your clients.
Don't forget to ensure that the independent contractor's deliverables are specifically outlined in the agreement.
It is critical to specifically outline exactly what the contractor will be doing.
