Your independent contractor agreements provide important protections for both the worker and the company requesting the work be completed. We’ve previously covered how companies can manage compliance when using independent contractors, as well as essential legal terms for contractor agreements, and the stringent tests used to determine if your worker is an independent contractor or employee in California. In this article, we’ll move away from the strictly legal and look at how companies can use their efficient independent contractor agreements as a relationship management tool.
Before reading these tips, it’s important that you seek legal counsel if you’re uncertain about whether the individual you’re considering bringing on is an independent contractor or an employee. The consequences for misclassification of an employee as an independent contractor can be significant.
Here are 5 practical tips for efficient independent contractor agreements:
Tip 1: Clearly outline the scope of services.
The purpose of your independent contractor agreement is to govern the relationship between the parties. An important part of that is to ensure the independent contractor knows what is expected of them and, conversely, that the contracting party understands the scope of services being provided. However, it’s also important to ensure that you aren’t overreaching in terms of oversight and control over the project. The level of oversight and control over an individual can impact the classification of the worker (and may lead to them being considered an employee).
At a minimum, the scope of services provisions in your independent contractor agreements should include:
- A comprehensive description of the project, including providing context for the work.
- An outline of the work product you expect to receive. This should include specific details about the quality and/or quantity of the finalized work product.
- The timeline for the provision of services, including a start and end date.
Tip 2: Include details regarding how expenses will be handled.
Generally speaking, independent contractors are responsible for paying their own expenses. They’ll also typically be required to provide their own supplies and equipment, rely on their own licensed products, and they’ll need to pay subcontractors if they subcontract the work. However, independent contractors are able to include terms that increase their fees where expenses are incurred. It’s not uncommon to see tradespeople include a mileage provision or call-out fee, for instance.
It’s important that both parties are clear about how expenses incurred by the independent contractor will be managed. The parties should discuss this in advance. And the agreed terms should be outlined in a specific provision in the independent contractor agreement.
Tip 3: Efficient independent contractor agreements clearly outline the payment terms.
Independent contractor agreements should clearly outline payment terms, including:
- Whether the project is on a fixed-fee or hourly basis.
- When and how the independent contractor will be paid, including whether payments will be provided once certain milestones are reached or at specific intervals.
- Any ceilings on costs.
- Details of how the contractor can request payment for their work. You should include details about where and when the contractor’s invoice should be submitted.
- That the independent contractor is responsible for payment of their own taxes and that other required payments will not be withheld from the total payment sum.
The agreement may also outline payment terms for additional or ad hoc work outside of the scope of services. This can streamline workflows if you anticipate work outside of the scope of services arising from time to time.
Tip 4: Discuss and agree on your communication requirements.
Independent contractors are going to have different communication styles and preferences. You can reduce the risk of conflict by outlining communication requirements in the terms of your independent contractor agreement.
You might consider outlining:
- How you prefer to communicate (whether that’s via email, phone, in person, or using online tools like Zoom or Skype);
- How often you’d like to communicate;
- Any ceilings on the amount of communication per project (like, for instance, that one 30-minute progress update call is included per month but additional calls will be charged at an hourly rate);
- Response timelines for both parties.
Tip 5: Termination provisions are best agreed on in advance.
It’s generally better to contemplate the end of a relationship before issues arise. The benefits of including termination provisions in your independent contractor agreements are manifold, for instance:
- They provide certainty to the independent contractor about consequences for specific actions (like failing to meet quality requirements or missing milestone submissions).
- It outlines the structure for any dispute, including how much (if anything) the independent contractor will be paid if they fail to deliver timely or satisfactory work.
- Notice periods are also typically provided in the termination provisions. These allow either party to terminate the agreement without cause by giving written notice a certain number of days before the services are concluded. (For instance, by thirty (30) days’ prior written notice).
If you’d like assistance drafting efficient independent contractor agreements (that also promote compliance), reach out. Our attorneys will work with you to ensure individuals are correctly classified and working under an efficient and effective agreement.
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