Many construction jobs are filled by independent contractors and not by employees, but construction sites are not the only places you will find independent contractors. Lawyers, doctors, real estate sales agents and other professionals can work as either employees or as independent contractors.
Whether someone is an independent contractor or an employee can have tax and liability implications. For example, an employer must withhold taxes and might be required to provide benefits for an employee. An independent contractor doing the same job would be responsible for his or her own taxes and benefits. One way to make it clear that someone is not an employee is with an independent contractor agreement. Here are 10 things that should be included in your agreement:
- Identify the parties: The agreement should have the full names, including company or trade names, and the addresses of each of the parties clearly stated within it.
- Services performed: Be clear and detailed about the services or work the independent contractor is to perform.
- Consideration to be paid: How much the contractor is to be paid and how payment will be made is essential to the agreement. It might be beneficial to attach an invoice from the contractor and reference it in this section.
- Tools and equipment: As a general rule, an independent contractor supplies his or her own tools and equipment needed to complete the job. If the person hiring the contractor provides the tools and equipment, there is a risk the relationship could be interpreted as one of an employer and an employee.
- Status of the person hired: Make it clear that the person is an independent contractor by being specific about the person’s duties and responsibilities. Independent contractors are responsible for completing an assigned task, but how they go about doing it is up to them. This is in contrast to employees who are controlled much more closely by their employers.
- Taxes: Specify that the independent contractor is responsible for the payment of income, Social Security and other state and federal taxes.
- Insurance coverage: Discuss with an attorney the laws in your state pertaining to workers’ compensation and other insurance coverages that are usually provided for employees to determine if who is responsible for providing them when working with an independent contractor.
- Liability for damages: Independent contractors are usually liable for damage or injury caused by them or their employees. If the contractor is required to obtain liability insurance for this job, it should be specified in the independent contractor agreement.
- Termination and modification: Be specific about how and under what conditions the agreement may be modified, cancelled or terminated by any of the parties.
- Assignment of the contract: Unless it is spelled out in an independent contractor agreement, a contractor can assign the work to a subcontractor without your permission. If this would be a problem for you, restrict the contractor’s right to assign or delegate work.