5 Must-Haves In Your Independent Contractor Agreement

Congratulations! Stepping out on your own is a big deal and I want you to celebrate … and protect yourself. When you agree to work for another person or company as a freelancer, you're acting as an independent contractor. According to the Bureau of Labor Statistics (BLS), independent contractors make up the largest percentage of people in alternative work arrangements. The Freelancer's Union reported that 56.7 million workers freelanced for part of or all of 2020.

So, how do you protect yourself, your work, and your pocketbook? First off, you need a lawyer to look at any legal agreement you sign. Just a friendly reminder!

That way, an independent contractor agreement properly protects you, as well as the employer. It is a legally-binding document between an employer (individual or company) and a 1099 worker (contractor).

Here are five things that should be in every independent contractor agreement:

1. Scope of work and timeline. Every contract needs to explicitly state the details of the work to be performed, the deliverables, and a timeline for completion and delivery. Be specific. The most important part of this section is clearly defining what is included as well as stating that anything not clearly stated is not part of this agreement. Being vague in your description leaves a lot of wiggle room – which can translate into a lot of extra time spent on the project/contract that you’re not getting paid to do.
2. Payment. While this seems obvious, there are other components to payment, such as cancellation fees, deposits, terms, and discounts. Common terms for payment are net 30, meaning, you're paid 30 days after invoicing. Another common term used to incentivize on-time payment is to offer a discount if the invoice is paid early. That might look like a 5/10 net 30, meaning the client will receive 5% off if paid within 10 days otherwise full payment is due in 30 days.

A cancellation fee ensures you'll get something for your efforts should your client change their mind. Cancellation fees are a percentage of the agreed upon price, often ranging between 20% and 25%.

I recommend asking for a deposit when first establishing relationships with new clients. Deposits range from 25% to 50% with the remainder of the balance due upon delivery. If the project is complicated and requires multiple deliverables over time, requiring incremental payment is not uncommon.

Best Travel Insurance Companies

Best Covid-19 Travel Insurance Plans

1. Ownership. In most cases, the employer will own the work – after they've paid for it. However, there are circumstances when you may want to own the work and license the work for use by the company. If you're working as a creative artist, you may ask for privileges to showcase the work or use as samples in your portfolio. This is something to ask a lawyer about, in order for the wording to protect your intellectual property.
2. Confidentiality and trade secrets. While the employer is likely to require this clause, they will find it refreshing that you included it up front. As a contractor, you will have access to confidential information and trade secrets of the company. Ensuring the company you will keep those confidential shows good faith. I can almost assure you that if you don't include a confidentiality clause, your contract won't be signed.
3. Termination. Independent contractors make up almost half of the US workforce. Where contractors used to be hired to complete a project or a specific task, they are more commonly working over a period of months. A termination clause states how much notice the contractor or employer must give to end the contract.

Of course, every agreement you sign should be looked at by an attorney. The money on the front end is worth the headache that could come on the back end.

An independent contractor agreement is a legally-binding contract. For most contracts, a downloadable agreement from a reputable source will get you started. However, if you work in a field with high stakes in intellectual property, such as biotechnology where you are part of a team working on new drug therapies or vaccines, I strongly recommend hiring an attorney. In these instances, the company will likely provide the contractor agreement, and you need to make sure you're protected under that agreement.

There are a lot of free resources to download independent contractor agreements, but beware. I recommend doing your homework. You want to make sure you include all the necessary clauses specific to the state(s) where you work. Most often, it's worth the money to invest in an attorney to write a standard independent contractor's agreement for the typical work you do.