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What is a contractor agreement or IR35?

Ensuring your contractor agreement is as comprehensive as possible can be tricky - especially if you offer complex services.

If you're looking to draft a comprehensive work agreement, then using contract templates or model contracts can be incredibly useful. They'll show you all the sections you need to include, and help you lay everything out so that it's as clear as possible.

Fortunately, this little guide has everything you need to know about writing contracts and using document templates. From what your agreement should cover, to why having a contract is important - you can find expert advice below.

A contractor agreement defines the services that the client is purchasing from the contractor. It covers the nature of the work the contractors will complete, outlines when and how the services will be carried out, and stipulates responsibilities and payment conditions.

The contract is also used for tax purposes. A contractor agreement is often referred to as an IR35 - which is a document that ensures self-employed contractors pay the same amount of tax as the client's full and part-time employees. It is used by the Government to reduce tax avoidance.

What should be included in an independent contractor agreement?

If you want to make contracts that are as comprehensive as possible, and beneficial for both the contractor and the end client, then here are all the sections that you should include:

Details of All Involved Parties

This section should include all basic information about the client and the contractor team - such as the name of each individual contractor, the client company name, postal addresses, and telephone numbers.

Description of Contractor Services

The services description will define each aspect of the job the contractor will carry out. It's important to be as detailed as possible, so try to list each stage of the process, and give information on when each step should be completed, and any resources or support needed.

Outlining the service clearly in your contract will help protect every party involved, and will ensure that everyone understands the terms of the contracted work.

Payment Terms

The payment terms section should be as detailed as possible to avoid miscommunication. Try to list costs accurately, and signify if any values have been estimated or could potentially change.

Clearly state who is liable for certain expenses (e.g. transport), and stipulate when final payments should be made - this is especially important if you require deposits or multiple payments over time.

As an IR35 document, the contract will be used for tax purposes, so your payment clauses must be accurate.

Labour and Materials

List the labour and materials required to complete the work - and state which party is responsible for sourcing and supplying the necessary resources.

If the property owner must obtain planning permission or a worker license for the contractor, state that, too.

Start and End Dates

Laying out a business schedule can reduce conflict between parties. Use the Service Description to help you, and list how long it should take to complete each stage of the service.

You should also list a final completion date and state when the contract will expire.

Conflict Resolution and Liability

This section gives vital advice for protecting both the individual contractor and the client company.

Highlight when either party may end the contract early, and include considerations for how conflict may be mediated.

State who is liable in the event of unfair contract termination, damages, losses, or incomplete work. You should also include insurance information for both the client's company and the contracted business if appropriate.

Subcontracting

If you require them, you must include basic information on your subcontractors, including who is responsible for their compensation, expenses, and insurance (if necessary).

Intellectual Property Rights

For some services (such as content writing), you may deal with issues surrounding intellectual property. In this instance, your contract must note who has the rights to the finished work, and who may reproduce or use it in the future.

Why is having an independent contractor agreement important?

A contractor agreement is useful for several reasons.

Firstly, it creates a positive working relationship between the client and any contractors. The agreement will outline exactly how and when a service should be completed, so it reduces the risk of miscommunication between parties.

Secondly, it protects self-employed contractors. A properly written contract will prevent the working relationship from being terminated unfairly, will make sure proper working practices are upheld, and will help ensure the contractor is paid fairly for their work.

Finally, as an IR35 document, the agreement is incredibly important for ensuring you're paying the correct amount of tax on your earnings, so that you don't get caught out in future.

If you want to ensure your contracts are as effective as possible, you can always use contract templates.

When should you use an independent contractor contract?

An agreement should be used when a business wishes to hire a self-employed contractor for short-term services (such as construction). The contractor will not be a permanent employee, and should only remain with the business until the agreed-upon services are completed.

Anyone hired on a permanent basis will be an employee, not a contractor, and will require a different work agreement compared to those that fit under self-employment.

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The simplest way to create a legally sound contract. Check out an example below

Contractor Contract Template

This Contract is between Sample Client (the "Client") and John Doe (the "Independent Contractor").

The Contract is dated [the date both parties sign].

1. WORK AND PAYMENT.

1.1 Project. The Client is hiring the Independent Contractor to do the following: The Independent Contractor will assist the Client with professional services.

1.2 Schedule. The Independent Contractor will begin work on March 09, 2021 and the work is ongoing. This Contract can be ended by either Client or Independent Contractor at any time, pursuant to the terms of Section 6, Term and Termination.

1.3 Payment. The Client will pay the Independent Contractor a rate of $50.00 (USD) per hour. Of this, the Client will pay the Independent Contractor $500.00 (USD) before work begins.

1.4 Expenses. The Client will reimburse the Independent Contractor's expenses. Expenses do not need to be pre-approved by the Client.

1.5 Invoices. The Independent Contractor will invoice the Client weekly. The Client agrees to pay the amount owed within 15 days of receiving the invoice. Payment after that date will incur a late fee of 5.0% per month on the outstanding amount.

1.6 Support. The Independent Contractor will not provide support for any deliverable once the Client accepts it, unless otherwise agreed in writing.

2. OWNERSHIP AND LICENSES.

2.1 Client Owns All Work Product. As part of this job, the Independent Contractor is creating “work product” for the Client. To avoid confusion, work product is the finished product, as well as drafts, notes, materials, mockups, hardware, designs, inventions, patents, code, and anything else that the Independent Contractor works on—that is, conceives, creates, designs, develops, invents, works on, or reduces to practice—as part of this project, whether before the date of this Contract or after. The Independent Contractor hereby gives the Client this work product once the Client pays for it in full. This means the Independent Contractor is giving the Client all of its rights, titles, and interests in and to the work product (including intellectual property rights), and the Client will be the sole owner of it. The Client can use the work product however it wants or it can decide not to use the work product at all. The Client, for example, can modify, destroy, or sell it, as it sees fit.

2.2 Independent Contractor's Use Of Work Product. Once the Independent Contractor gives the work product to the Client, the Independent Contractor does not have any rights to it, except those that the Client explicitly gives the Independent Contractor here. The Client gives permission to use the work product as part of portfolios and websites, in galleries, and in other media, so long as it is to showcase the work and not for any other purpose. The Client does not give permission to sell or otherwise use the work product to make money or for any other commercial use. The Client is not allowed to take back this license, even after the Contract ends.

2.3 Independent Contractor's Help Securing Ownership. In the future, the Client may need the Independent Contractor's help to show that the Client owns the work product or to complete the transfer. The Independent Contractor agrees to help with that. For example, the Independent Contractor may have to sign a patent application. The Client will pay any required expenses for this. If the Client can’t find the Independent Contractor, the Independent Contractor agrees that the Client can act on the Independent Contractor's behalf to accomplish the same thing. The following language gives the Client that right: if the Client can’t find the Independent Contractor after spending reasonable effort trying to do so, the Independent Contractor hereby irrevocably designates and appoints the Client as the Independent Contractor's agent and attorney-in-fact, which appointment is coupled with an interest, to act for the Independent Contractor and on the Independent Contractor's behalf to execute, verify, and file the required documents and to take any other legal action to accomplish the purposes of paragraph 2.1 (Client Owns All Work Product).

2.4 Independent Contractor's IP That Is Not Work Product. During the course of this project, the Independent Contractor might use intellectual property that the Independent Contractor owns or has licensed from a third party, but that does not qualify as “work product.” This is called “background IP.” Possible examples of background IP are pre-existing code, type fonts, properly-licensed stock photos, and web application tools. The Independent Contractor is not giving the Client this background IP. But, as part of the Contract, the Independent Contractor is giving the Client a right to use and license (with the right to sublicense) the background IP to develop, market, sell, and support the Client’s products and services. The Client may use this background IP worldwide and free of charge, but it cannot transfer its rights to the background IP (except as allowed in Section 11.1 (Assignment)). The Client cannot sell or license the background IP separately from its products or services. The Independent Contractor cannot take back this grant, and this grant does not end when the Contract is over.

2.5 Independent Contractor's Right To Use Client IP. The Independent Contractor may need to use the Client’s intellectual property to do its job. For example, if the Client is hiring the Independent Contractor to build a website, the Independent Contractor may have to use the Client’s logo. The Client agrees to let the Independent Contractor use the Client’s intellectual property and other intellectual property that the Client controls to the extent reasonably necessary to do the Independent Contractor's job. Beyond that, the Client is not giving the Independent Contractor any intellectual property rights, unless specifically stated otherwise in this Contract.

3. COMPETITIVE ENGAGEMENTS. The Independent Contractor won’t work for a competitor of the Client until this Contract ends. To avoid confusion, a competitor is any third party that develops, manufactures, promotes, sells, licenses, distributes, or provides products or services that are substantially similar to the Client’s products or services. A competitor is also a third party that plans to do any of those things. The one exception to this restriction is if the Independent Contractor asks for permission beforehand and the Client agrees to it in writing. If the Independent Contractor uses employees or subcontractors, the Independent Contractor must make sure they follow the obligations in this paragraph, as well.

4. NON-SOLICITATION. Until this Contract ends, the Independent Contractor won’t: (a) encourage Client employees or service providers to stop working for the Client; (b) encourage Client customers or clients to stop doing business with the Client; or (c) hire anyone who worked for the Client over the 12-month period before the Contract ended. The one exception is if the Independent Contractor puts out a general ad and someone who happened to work for the Client responds. In that case, the Independent Contractor may hire that candidate. The Independent Contractor promises that it won’t do anything in this paragraph on behalf of itself or a third party.

5. REPRESENTATIONS.

5.1 Overview. This section contains important promises between the parties.

5.2 Authority To Sign. Each party promises to the other party that it has the authority to enter into this Contract and to perform all of its obligations under this Contract.

5.3 Independent Contractor Has Right To Give Client Work Product. The Independent Contractor promises that it owns the work product, that the Independent Contractor is able to give the work product to the Client, and that no other party will claim that it owns the work product. If the Independent Contractor uses employees or subcontractors, the Independent Contractor also promises that these employees and subcontractors have signed contracts with the Independent Contractor giving the Independent Contractor any rights that the employees or subcontractors have related to the Independent Contractor's background IP and work product.

5.4 Independent Contractor Will Comply With Laws. The Independent Contractor promises that the manner it does this job, its work product, and any background IP it uses comply with applicable U.S. and foreign laws and regulations.

5.5 Work Product Does Not Infringe. The Independent Contractor promises that its work product does not and will not infringe on someone else’s intellectual property rights, that the Independent Contractor has the right to let the Client use the background IP, and that this Contract does not and will not violate any contract that the Independent Contractor has entered into or will enter into with someone else.

5.6 Client Will Review Work. The Client promises to review the work product, to be reasonably available to the Independent Contractor if the Independent Contractor has questions regarding this project, and to provide timely feedback and decisions.

5.7 Client-Supplied Material Does Not Infringe. If the Client provides the Independent Contractor with material to incorporate into the work product, the Client promises that this material does not infringe on someone else’s intellectual property rights.

6. TERM AND TERMINATION. This Contract is ongoing, until ended by the Client or the Independent Contractor. Either party may end this Contract for any reason by sending an email or letter to the other party, informing the recipient that the sender is ending the Contract and that the Contract will end in 7 days. The Contract officially ends once that time has passed. The party that is ending the Contract must provide notice by taking the steps explained in Section 11.4. The Independent Contractor must immediately stop working as soon as it receives this notice, unless the notice says otherwise. The Client will pay the Independent Contractor for the work done up until when the Contract ends and will reimburse the Independent Contractor for any agreed-upon, non-cancellable expenses. The following sections don’t end even after the Contract ends: 2 (Ownership and Licenses); 3 (Competitive Engagements); 4 (Non-Solicitation); 5 (Representations); 8 (Confidential Information); 9 (Limitation of Liability); 10 (Indemnity); and 11 (General).

7. INDEPENDENT CONTRACTOR. The Client is hiring the Independent Contractor as an independent contractor. The following statements accurately reflect their relationship:

- The Independent Contractor will use its own equipment, tools, and material to do the work.- The Client will not control how the job is performed on a day-to-day basis. Rather, the Independent Contractor is responsible for determining when, where, and how it will carry out the work.- The Client will not provide the Independent Contractor with any training.- The Client and the Independent Contractor do not have a partnership or employer-employee relationship.- The Independent Contractor cannot enter into contracts, make promises, or act on behalf of the Client.- The Independent Contractor is not entitled to the Client’s benefits (e.g., group insurance, retirement benefits, retirement plans, vacation days).- The Independent Contractor is responsible for its own taxes.- The Client will not withhold social security and Medicare taxes or make payments for disability insurance, unemployment insurance, or workers compensation for the Independent Contractor or any of the Independent Contractor's employees or subcontractors.

8. CONFIDENTIAL INFORMATION.

8.1 Overview. This Contract imposes special restrictions on how the Client and the Independent Contractor must handle confidential information. These obligations are explained in this section.

8.2 The Client’s Confidential Information. While working for the Client, the Independent Contractor may come across, or be given, Client information that is confidential. This is information like customer lists, business strategies, research & development notes, statistics about a website, and other information that is private. The Independent Contractor promises to treat this information as if it is the Independent Contractor's own confidential information. The Independent Contractor may use this information to do its job under this Contract, but not for anything else. For example, if the Client lets the Independent Contractor use a customer list to send out a newsletter, the Independent Contractor cannot use those email addresses for any other purpose. The one exception to this is if the Client gives the Independent Contractor written permission to use the information for another purpose, the Independent Contractor may use the information for that purpose, as well. When this Contract ends, the Independent Contractor must give back or destroy all confidential information, and confirm that it has done so. The Independent Contractor promises that it will not share confidential information with a third party, unless the Client gives the Independent Contractor written permission first. The Independent Contractor must continue to follow these obligations, even after the Contract ends. The Independent Contractor's responsibilities only stop if the Independent Contractor can show any of the following: (i) that the information was already public when the Independent Contractor came across it; (ii) the information became public after the Independent Contractor came across it, but not because of anything the Independent Contractor did or didn’t do; (iii) the Independent Contractor already knew the information when the Independent Contractor came across it and the Independent Contractor didn’t have any obligation to keep it secret; (iv) a third party provided the Independent Contractor with the information without requiring that the Independent Contractor keep it a secret; or (v) the Independent Contractor created the information on its own, without using anything belonging to the Client.

8.3 Third-Party Confidential Information. It’s possible the Client and the Independent Contractor each have access to confidential information that belongs to third parties. The Client and the Independent Contractor each promise that it will not share with the other party confidential information that belongs to third parties, unless it is allowed to do so. If the Client or the Independent Contractor is allowed to share confidential information with the other party and does so, the sharing party promises to tell the other party in writing of any special restrictions regarding that information.

9. LIMITATION OF LIABILITY. Neither party is liable for breach-of-contract damages that the breaching party could not reasonably have foreseen when it entered this Contract.

10. INDEMNITY.

10.1 Overview. This section transfers certain risks between the parties if a third party sues or goes after the Client or the Independent Contractor or both. For example, if the Client gets sued for something that the Independent Contractor did, then the Independent Contractor may promise to come to the Client’s defense or to reimburse the Client for any losses.

10.2 Client Indemnity. In this Contract, the Independent Contractor agrees to indemnify the Client (and its affiliates and their directors, officers, employees, and agents) from and against all liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of: (i) the work the Independent Contractor has done under this Contract; (ii) a breach by the Independent Contractor of its obligations under this Contract; or (iii) a breach by the Independent Contractor of the promises it is making in Section 5 (Representations).

10.3 Independent Contractor Indemnity. In this Contract, the Client agrees to indemnify the Independent Contractor (and its affiliates and their directors, officers, employees, and agents) from and against liabilities, losses, damages, and expenses (including reasonable attorneys’ fees) related to a third-party claim or proceeding arising out of a breach by the Client of its obligations under this Contract.

11. GENERAL.

11.1 Assignment. This Contract applies only to the Client and the Independent Contractor. The Independent Contractor cannot assign its rights or delegate its obligations under this Contract to a third-party (other than by will or intestate), without first receiving the Client’s written permission. In contrast, the Client may assign its rights and delegate its obligations under this Contract without the Independent Contractor's permission. This is necessary in case, for example, another Client buys out the Client or if the Client decides to sell the work product that results from this Contract.

11.2 Arbitration. As the exclusive means of initiating adversarial proceedings to resolve any dispute arising under this Contract, a party may demand that the dispute be resolved by arbitration administered by the American Arbitration Association in accordance with its commercial arbitration rules.

11.3 Modification; Waiver. To change anything in this Contract, the Client and the Independent Contractor must agree to that change in writing and sign a document showing their contract. Neither party can waive its rights under this Contract or release the other party from its obligations under this Contract, unless the waiving party acknowledges it is doing so in writing and signs a document that says so.

11.4 Notices.

(a) Over the course of this Contract, one party may need to send a notice to the other party. For the notice to be valid, it must be in writing and delivered in one of the following ways: personal delivery, email, or certified or registered mail (postage prepaid, return receipt requested). The notice must be delivered to the party’s address listed at the end of this Contract or to another address that the party has provided in writing as an appropriate address to receive notice.

(b) The timing of when a notice is received can be very important. To avoid confusion, a valid notice is considered received as follows: (i) if delivered personally, it is considered received immediately; (ii) if delivered by email, it is considered received upon acknowledgement of receipt; (iii) if delivered by registered or certified mail (postage prepaid, return receipt requested), it is considered received upon receipt as indicated by the date on the signed receipt. If a party refuses to accept notice or if notice cannot be delivered because of a change in address for which no notice was given, then it is considered received when the notice is rejected or unable to be delivered. If the notice is received after 5:00pm on a business day at the location specified in the address for that party, or on a day that is not a business day, then the notice is considered received at 9:00am on the next business day.

11.5 Severability. This section deals with what happens if a portion of the Contract is found to be unenforceable. If that’s the case, the unenforceable portion will be changed to the minimum extent necessary to make it enforceable, unless that change is not permitted by law, in which case the portion will be disregarded. If any portion of the Contract is changed or disregarded because it is unenforceable, the rest of the Contract is still enforceable.

11.6 Signatures. The Client and the Independent Contractor must sign this document using Bonsai’s e-signing system. These electronic signatures count as originals for all purposes.

11.7 Governing Law. The laws of the state of Alaska govern the rights and obligations of the Client and the Independent Contractor under this Contract, without regard to conflict of law principles of that state.

11.8 Entire Contract. This Contract represents the parties’ final and complete understanding of this job and the subject matter discussed in this Contract. This Contract supersedes all other contracts (both written and oral) between the parties.

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