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An independent contractor agreement is a legally binding relationship between a client and a contractor.
The agreement covers every project area, from scope to payments, and spells it out in black and white. Not only does an agreement create a formal working relationship, it also describes other (sometimes overlooked) parts of working with independent contractors, like liabilities and termination processes.
These agreements are important for contractors, too. As independent contractors are not employees, it's crucial to have specifics like fees, payment dates, and expectations put into writing before a project kicks off.
Independent contractor agreements are a win-win—it makes the working relationship safer for both parties.
Situations like incomplete or unacceptable work, unfair dismissal, and overdue payments are all included, and tell both the client and independent contractor what their legal obligations are.
Note: Sign-up now to start creating your free independent contractor agreement. It has all the basic elements you’ll need to get going, and it’s been written and reviewed by top lawyers.
Employing an independent contractor can be a great way to (temporarily) have a highly skilled individual join your team.
For an employer, using freelance professionals can be a smart way to cover busy periods or bring in skills their regular team lacks. Yet, it's essential to have the same contractual obligations set in stone as you would with in-house employees if you are looking to hire outside your company.
It's crucial that the working agreement is thorough and explains that the independent contractor isn't a permanent employee of a business and will only remain working with the client until the terms of their work contract have been fulfilled.
If you are the independent contractor taking on a new job, specifics like payment dates and project scope should be set in stone before you start working so you don't end up doing more work than budgeted for.
That's why an independent contractor agreement plays an important role.
The agreement helps protect both parties involved, especially with areas like confidentiality agreements, liability insurance, losses, damages, or disagreements. And making sure an independent contractor agreement is signed before any work starts also allows both parties to avoid ambiguity with deadlines, key deliverables, and pay rates.
So, what exactly should you include in an independent contractor agreement to make it legally watertight?
Making sure that the entire agreement has everything it needs can seem overwhelming—here are the key clauses that any good contract should include:
Any legally binding independent contractor agreement should include standard details about the contractor and the client.
The client's name, business name, postal address, and contact information should be included in this part of the contract. The same information for the contract worker should also be added.
The agreement should include a clear scope that outlines a working arrangement to avoid any miscommunication or understanding about what the project will produce.
Not only does a scope help reduce the chances of any party being unhappy with the final work product, but it should also include tasks such as sourcing and obtaining materials if necessary.
This is also the section where you should outline the job schedule, working hours, and delivery dates for each stage of the project and completion.
Remember, the more detailed your descriptions are, the less room there is for confusion.
As contractors are paid for specific services from a company, it's crucial to highlight that contractors are not employees.
The contract must state the independent contractor is not an employee and will only work with the client until the terms of their agreement (the scope) have been completed. If the contractor is eligible for any additional benefits—like expenses incurred or employing subcontractors to help with the project—it should be included here.
It's necessary to make sure both client and contractor know the payment terms and conditions before any work starts.
This part of the independent contractor agreement should outline all costs in detail, such as which party is responsible for covering expenses (e.g., travel or equipment) in addition to a final total of the project. And if the costs are estimated and subject to change, that should be made clear so that the client can adjust their budget if needed.
If the contractor requires the client to pay a deposit or make multiple payments towards expenses, the contract should highlight this and provide precise dates about when these payments need to be made.
This section is where a contractor should outline their conditions around late fees if a client doesn't pay their invoice on time, like so:
Finally, if there are any circumstances where a client is exempt from paying the contractor—like uncompleted work—this should also be included.
If the project produces something, like content or a website, this is called Intellectual Property (IP)—and you must outline how both parties can use it.
For example, if you are an independent contractor that works as a photographer, the contract should cover who has the rights to that intellectual property. This part of the contract needs to state which products belong to which parties—highlighting who can reproduce or use the content in the future under copyright laws to stop unauthorized use of creative work.
In this independent contractor agreement example, there are strict instructions about how IPs should be used in the project:
Pro-tip: If you're unsure whether this information applies to your company, you can always use contract templates to help you.
Indemnification clauses are a crucial part of any agreement as they protect both parties if there are disagreements during a project.
This section of the agreement outlines who is liable to pay compensation if contract terms are breached, like damages and losses as well as other provisions. Once again, getting the legal jargon right in this part of the contract is crucial as it covers both parties if a third party tries to sue, for example.
Here is what a typical indemnification clause looks like:
Pro-tip: If you're unsure how to include this information in your independent contractor agreement, then using a contractor agreement template can save you lots of headaches.
Finally, your independent contractor agreement needs to cover how and when the service agreement will come to an end.
Contract termination should outline when both parties are free from the obligations of the agreement. How you do this can vary from giving provisional termination dates or stating how long the contract is valid for (i.e., six months.)
It should also be explicit about how the contract needs to be terminated, like giving "X days" written notice and how far ahead the agreement needs to be ended before work officially stops.
Lastly, you should also outline certain circumstances in which both parties will be released from the agreement early, like if someone violates certain conditions like breaching a confidentiality agreement.
Using an independent contractor agreement template is the best way to ensure that all T&Cs (like legal and financial obligations) are covered, and both parties will be protected.
Here's an independent contractor agreement template for you to steal.
If you've made it this far, one thing should be clear—independent contractor agreements are complex documents.
If the agreement isn't written correctly, both parties could be exposed to all types of risks, from IP violations to scope creep and payment disagreements. Or, you may have to go down the expensive route and ask a law firm to provide legal advice to fix any mistakes.
With Bonsai, companies can create independent contractor agreements and edit the T&Cs so that both parties agree and are on the same page. Then, the last step is having both parties sign the contractor agreement digitally.
Bonsai also walks you through the agreement when you are creating it, offering helpful tips to make the contract as fair as possible to both parties.
Writing an independent contractor agreement using Bonsai's generator means that your contract will be much more specific than the largely generic agreements a standard template will leave you with.
That's because many templates are rigid, difficult to edit and format, and use way too much jargon. On the other hand, Bonsai's templates allow you to tweak each aspect of an independent contractor agreement, from deposits to payment dates and late fees.
Once you input the basics (like project fees and expenses), Bonsai then allows you to edit specific parts of the agreement, like work product ownership and portfolio rights.
Bonsai’s contract generator has been vetted by experienced contract lawyers and thousands of expert freelancers, covering all of the important aspects of a contract we mentioned earlier.
And the best bit? Bonsai's contract generator is super easy to use. Take it for a test drive here.
It's essential for companies who hire independent contractors to understand the differences between these contractors and employees.
The Internal Revenue Service (IRS) says anyone that is offering their services to the general public is usually considered an independent contractor. As such, they are responsible for their own obligations to the IRS, such as taxes.
You, the client hiring the independent contractor, are under no legal obligations. You don't have to withhold income taxes or pay social security or health insurance when you hire outside help.
Independent contractors should be aware that when they hire out their services to a company, they won't be given the same benefits as its employees.
They won't be entitled to vacation time or sick leave, and independent contractors are in charge of their legal obligations like taxes. But independent contractors also aren't given the same rights and protections given to regular employees like health insurance, withholding taxes, and benefits plans.
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.
5.1 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.
10.1 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.
11.1 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.
(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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