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