Use our independent contractor agreement to create a contract between a company and a self-employed worker.
Updated August 9, 2024
Written by Sara Hostelley | Reviewed by Brooke Davis
An independent contractor agreement is a contract between a non-employee worker and a company for work on an outsourced job or project.
This legally binding agreement outlines the details of the two parties’ arrangement, including the contractor’s service, the length of their work term, and how the company will pay the contractor.
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An independent contractor is a self-employed individual performing services for clients under a contract. They control their work methods and schedules and often complete tasks and projects for multiple clients. They set their pay rates and aren’t entitled to employee benefits.
The US Department of Labor implemented a new worker classification rule in 2024. This new rule states that an independent contractor isn’t economically dependent on a business. It also considers various factors, such as the degree of control and the opportunity for profit/loss, when making the distinction between an independent contractor and an employee.
Independent contractors must report their income to the Internal Revenue Service (IRS). [1] They receive IRS Form 1099-NEC from clients who paid them $600 or more in a year.
They use the information from this form and other income records to report their income on Schedule C (Form 1040) and calculate their self-employment tax on Schedule SE (Form 1040).
Employees must fill out a W-4 to inform their employers of their withholding preferences. For each tax year, employers must provide employees with W-2s so they can include their earnings and the taxes withheld from their paychecks on their tax returns.
Here are some instances when using a customized independent contractor agreement is useful:
Explore the elements of an independent contractor agreement:
Hiring independent contractors involves considering relevant details, such as the intended scope of work, deliverables, and timelines. Then, use tools and resources like freelancing platforms, industry associations, referrals from like-minded companies, and your professional network to narrow your options and create a pool of potential candidates.
It depends on your industry, but you may be able to find contractors on websites like LinkedIn, Fiverr, Jooble, and FlexJobs.
Ask potential candidates to send you their resumes, work portfolios, and other documents that reflect their competencies. Review these materials to better understand their abilities.
During the review process or your conversations, evaluate how the contractor behaves and ask situational questions to determine their competency in skills like following directions and reacting to change.
Check the contractor’s background to ensure they’re reliable and honest. If they’re a business, you can look them up on Google or read what other clients say about them on TrustPilot, BBB.org, and Yelp.
If they’re an individual, consider paying for a criminal background check to uncover any negligence or fraud in their past.
Choose a final candidate based on their interview performance and provided materials. Allow them to negotiate the terms of their contracted work. Based on the negotiation outcome, write an agreement including details such as the payment terms, nature of work, intellectual property rights, confidentiality obligations, and dispute resolution methods.
It’s also recommended to use a clear and professional invoice template for both parties to reference when creating and submitting invoices.
Ensure both parties sign the contract. Collect the completed IRS W-9 form and gather any necessary additional documentation.
At the end of each tax year, you must provide IRS Form 1099-NEC to each independent contractor to whom you’ve compensated at least $600 and file a copy of each Form 1099-NEC with the IRS by the deadline.
Misclassifying employees as independent contractors can produce financial consequences for companies:
Download a free independent contractor agreement template in PDF or Word format below:
