Independent Contractor Agreement: 3 Tips You Need to Know

Hiring and maintaining motivated and talented workers are critical to the success of any business. A company may decide to hire a worker as an independent contractor rather than as an employee.

From the employer’s standpoint, considerable money can be saved by classifying a worker as an independent contractors. A firm that hires a worker as an independent contractor does not have to provider workers’ compensation insurance, unemployment compensation, overtime, or job benefits, such as health insurance and a retirement savings plan.

It also does not need to pay state and federal payroll taxes for the worker. More importantly, when an independent contractor is hired, the employer is not required to pay any portion of the contractor’s Social Security and Medicare taxes.

Companies usually use independent contractors for specialized, short term work and it’s a great way to try out a worker before committing to a longer term. A worker, such as a painter, who provides unsupervised, specialized work that is needed only sporadically is a clear-cut example of an independent contractor.

 

HERE ARE TOP 3 TIPS YOU NEED TO KNOW WHEN IT COMES TO USING INDEPENDENT CONTRACTORS:

TIP #1

Use an independent contractor agreement BEFORE the engagement begins so that your independent contractor is not misclassified as an employee.

Misclassification can create serious legal problems, including audits of the entire workforce by federal and state tax authorities and the imposition of penalties. This is an area of increasing concerns because both federal and state governments are increasing efforts to investigate employee misclassification issues to recoup lost revenue through penalties.

Further, a worker’s status can affect the rights of the employer to any copyrightable works or patentable inventions created by the worker. For example, employer is generally deemed to be the author of, and therefore the owner of the copyright for, any works created by an employee acting within the scope of employment. Similarly, the employer is the owner of any invention created by an employee “hired to invent.”

In contract, a company commission a work by an independent contractor will not own the copyright unless the company secures either a written contract stating that is a “work made for hire” or a written assignment of the copyright. Similarly, independent contractors own their inventions (and any patents) absent a written assignment of inventions.

 

TIP #2

Make sure you treat your independent contractor as a contractor, and not as an employee.

Do not control your contractor or micro-manage them. This is true even if you have an independent contractor agreement in place.

Statutes and case law often do not provide specific guidance for distinguishing employees from independent contractors. Keeping in mind that all of the facts of a worker relationship must be assessed and weighed and that no one factor is determinative, courts have used the following criteria to determine whether a worker is an employee or an independent contractor:

  • The nature and degree of control or supervision retained or exercised by the employer
  • The extent to which the services in question are an integral part of the employer’s core business. The more integrated and critical the worker’s services are in the employer’s day to day operations, the less independent the worker is.
  • Whether the employer provides the training
  • The kind of occupation
  • Whether services offered by worker is exclusive or the worker may pursue other jobs or engagements
  • The kill and judgment required for the independent enterprise to succeed
  • The intention of the parties, including any written agreement between the parties, regarding independent contractor or employee status.

Speak with a business lawyer if you have any doubts or questions about the applicabilities of these issues.

 

TIP 3

Do not leave anything to chance – the terms of  your independent contractor should be in writing and in great detail to prove the independency from the company

Businesses should make every attempt to determine proper status prior to the commencement of the work relationship.

The existence of an independent contractor agreement is essential from an entrepreneur’s standpoint. To withstand challenge, a worker with independent contractor status should no perform tasks that are central to the employer’s core business and should not retain sufficient control and autonomy with respect to the manner and means of his or her performance.

 

Why should you get an Independent Contractor Agreement?

Independent Contractor Agreement is perfect for companies or businesses that are looking to hiring an independent contractor on a temporary basis. Hiring an independent contractor is a great way for start-up businesses to acquire a specialized talent that is needed for a temporary assignment. Common independent contractor positions include graphic designers, business consultants, and freelance writers and editors. 

Interested in getting an independent contractor agreement tailored for your business? Start here.

 

Are you a business or an entrepreneur? We can help with your legal needs.

Mollaei Law is a business law firm serving businesses and entrepreneurs. We can help with all of your business needs including tailoring legal documents for your business, reviewing and drafting contracts, negotiating, business planning, setting up business entities, and helping with any of your business transactional forms.

For more information, visit www.mollaeilaw.com or give us a call at (818) 925-0002.