Legal Agreements

Sample Format of Independent Contractor Agreement

An Independent Contractor Agreement is executed between an independent contractor and the hiring party for execution of any specific project and for the specific time period. In order to understand a contract agreement you must be aware about independent contractor.

Who is Independent Contractor?

An independent contractor is a natural person, either an individual, business, or corporation who supply any kind of goods or services to another party per the terms of the agreement between them. Such an agreement can either be verbal or in writing. Their relationship is not of permanent nature but works on requirement basis.

What is Contractor Agreement?

It is a written contract which clearly spells out the purpose of hiring the contractor along with the term of appointment including the terms and conditions of such contract. One important point to be understood is that it is not an employment agreement. The contractor is very different from an employee, as their tenure of appointment is limited and they are not entitled to any additional benefits except for what is stated in the Contractor Agreement.

Any effective Contractor Agreement must include the following basic information:

• Who is the Contractor and by whom is he hired.
• What goods or services will be supplied by the contractor
• When will the contract become effective
• How much will be the payment

Reasons to hire Independent Contractor

There are various situations where it is preferable to hire a contractor than to hire a permanent employee. Following are the benefits of hiring a Contractor:

1. It does not involve any complex paperwork.
2. The contractor can provide expert knowledge in the specific
3. No long-term liability is created as these agreements are for a set time period or for any fixed task.
4. When the requirement is temporary in nature, hiring a contractor is the best solution
5. It is a cost-effective way to get work done, as hiring an employee for the task will incur a permanent cost. And hiring an expert on a permanent basis will be very pricey.
6. It is a flexible If the hirer is not satisfied with the results, he can switch from one contractor to another

Components of an Independent Contractor Agreement

• Basic Agreement and Its Subject Matter

The initial part of the agreement will be like any other contract stating the details of the parties involved. Along with that detail description of the subject matter of the contract is to be given. This subject matter will include the nature of work required to be done by the contractor, how will it be done and by when it is to be delivered to the contracting party.

• Status and Rights of Independent Contractor

This part shall clearly state the status of the contractor i.e. it is working on an independent basis. They are usually professionals or experts in their field and this should be mentioned in the contract. Their rights must also be clearly mentioned in the contract itself, like:

• They are free to work on contract basis for other third parties also. However, there can be a restriction to get involved with competitors working the same industry.
• They are free to perform the expected work in the manner or through means they desire.
• To get the work done by their employees or hire an assistant to the same. However, in some cases, they might be required to take prior permission from the hirer for the appointment of any new party.

This is important to define all these clauses, to eliminate any confusion regarding the status of the contract. And how they are different from general employees.

• Payment and Taxation Clause

This clause is to clarify conditions relating to the payments made to the independent contractor. This part will include:

• The amount of consideration for the work to be done by the contractor.
• When is it required to be paid
• Through with mode payment will be remitted i.e. cash, kind, online transfer etc.

The status of a contractor is different from that of an employee. Thus, it is recommended to clarify that the contractor is not entitled to benefits like pension, retirement benefits or other fringe benefits provided by the employer.

Along with that, taxation part must also be clearly mentioned in the contract. In case of contracts TDS is deducted by the hirer, this along with the percentage should be mentioned in the agreement.

• Insurance Claus

On the part of the Hirer

The contract must also state if the hiring party is providing any kind of insurance or liability benefits in case of any loss or bodily injury caused to the contractor in the course of business.

On the part of the Contactor

Along with liability on the part of the hirer, the agreement must also mention the liabilities on the part of the contractor. In some cases, the contractor is required to provide business liability insurance coverage to cover the loss caused due to non-performance on his part or if the delivered work is not in compliance with the stated requirement.

• Termination Clause

In order to discourage in disagreement in the future, it is recommended to incorporate the termination clause in the agreement itself. This clause shall state in what circumstances the agreement can be terminated by the parties. And what will be procedure and notice period for the same?

• Restrictive Covenants 

The most important part of such an agreement is the one containing the restrictive covenants. As the contractor is an outside party, an in order to ensure the execution of the work allotted to them they are provided with company’s sensitive and confidential information. In order to protect such information, these clauses are very important.

Such restrictive clauses can include:

• Non-compete clause: This is to restrict the contractor from establishing a competitive business in their current market area and for a specific period of time.
• Non- solicitation clause: This is to restrict the contractor from soliciting the key employees, suppliers or customers they came to know during the course of the contract.
• Confidentiality Clause: This is to restrict the contractor from disclosing any important and confidential trade secrets of the organization for their personal benefits.

• Litigation or Arbitration

It is recommended to include the arbitration stating the procedure to be followed to settle any disputes arises between the parties to the contract. If the dispute leads to litigation, then what will be jurisdiction under which the cases will be covered?

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