What Is an Independent Contractor Agreement?

An independent contractor agreement is a legally binding document about a working relationship between a company or individual (the client) and a self-employed worker (the contractor). The main topics that this agreement covers are the scope of work, payment terms, deadlines, and expectations. The contractors are also called “freelancers.”

Unlike the standard employment contracts, in this type of agreement, the freelancer is acting independently. That means they typically have the freedom to work on their own schedule and use preferred tools or methods to do the job. Another thing that sets a contractor apart from an employee is the tax responsibilities, which in this type of agreement, will fall on freelancers.

What Is the Purpose of an Independent Contractor Agreement?

Independent creator agreements have a few important purposes:

1. Clearly defines (limits) the working relationship

There’s almost always a line at the beginning of an independent contractor contract that clearly explains that this relationship is NOT considered an employment contract. Here’s an example:

“This Agreement does not constitute, and will not be construed as constituting, an employment relationship between the Company and Contractor.”

2. Contains clear and detailed description of services

Since most freelancers’ responsibilities are project-based, the description and scope of services and scope of work are often written with a lot of care. This helps both parties to have a better understanding of what is expected to be done by the contractor.

3. Serve as a source of legal protection for both parties

Another important purpose of an independent contractor is to set a financial and legal safety net for both parties. For the freelancer, the agreement emphasizes that he/she acts independently, which affects taxes and legal obligations. For the company, the work is completed as expected, and won’t be held liable for things like employee benefits or taxes.

Which Party Creates The Independent Contractor Agreement?

Typically, the hiring party (employer or business) drafts the independent contractor agreement. This is because the business usually sets the terms of the work, such as the scope, deadlines, and compensation. However, the contractor can negotiate the terms before agreeing to and signing the contract to ensure fairness and clarity.

What Should Be Included in an Independent Contractor Agreement?

• Scope of work and deliverables: Make sure the agreement is clear about how exactly the final work should look like, or if there are any milestones or deadlines.
• Compensation and payment terms: This should explain how much the freelancer is getting paid, when they’ll be paid, and how—whether that’s per hour or project.
• Reimbursement of expenses policies: If the client’s going to cover any of the freelancer’s expenses (like travel or materials), this part should cover what’s eligible and how to submit for reimbursement.
• Employment benefits and liability exclusion: The freelancer needs to clarify that he/she is not getting any employee benefits (like health insurance), and the company is not responsible for their taxes and legal liabilities.
• Termination clause: This will outline how either side can end the agreement, how much notice is needed, and what happens if it ends early.
• Dispute resolution: If there’s a disagreement, this section explains how you’ll resolve it—whether through mediation, arbitration, or going to court.
• Waivers: If one party doesn’t enforce a part of the agreement right away, it doesn’t mean they’re giving up their right to do so later.
• Liability insurance: Although a rare case in independent agreements, sometimes, the freelancers might need to have insurance in case something goes wrong during the project, and this part will specify that.
• Intellectual property ownership: It will specify who owns the work created during the project, so there’s no confusion about using it later.
• Confidentiality clause: If the company is dealing with sensitive information, this part makes sure it stays private and can’t be shared without permission.
• Non-compete agreement: If there’s a non-compete clause, it will prevent the freelancers from working with the client’s competitors for a certain period after the project is done.

How to Negotiate Independent Contractor Agreement?

Negotiating with a freelancer is all about keeping fair and realistic. Here are 8 negotiation tips to reach an effective agreement:

1. Instead of agreeing to a lump sum at the end of the project, propose breaking the payment into phases tied to deliverables.
2. Keep the scope of work and timelines simple but comprehensive. Avoid overly complex descriptions of tasks—use bullet points and specific deadlines to create an agreement that’s easy to understand and follow.
3. Offer incentives for early completion or penalties for delays. Contractors often appreciate the opportunity to earn more for finishing ahead of schedule.
4. Frame discussions around “win-win” situations. Instead of pushing for a one-sided deal, try to find ways that both parties benefit. For example, if the contractor agrees to a slightly lower rate, you could offer additional flexibility in project deadlines or non-monetary perks (e.g., more creative freedom or access to new projects).
5. Include provisions for renegotiating terms if circumstances change. Life happens. Situations evolve. Including a clause that allows for renegotiation if key factors change (e.g., project scope, deadlines, or performance expectations) can make both parties feel more comfortable committing to the agreement.
6. Be prepared to walk away if terms aren’t right. Sometimes the best way to negotiate is by showing you are willing to walk away from the deal. This can prompt the other party to be more flexible and consider your terms seriously. Just be sure to maintain professionalism and leave the door open for future discussions.
7. Mention the potential for future collaboration. If you’re impressed with a contractor’s work, bringing up the possibility of ongoing or future projects can help motivate them to negotiate more favorable terms. This sets a long-term working relationship in motion.
8. Negotiate a fallback solution if issues arise. If a key deliverable is delayed, include a backup plan for adjustments or extensions. Knowing that there’s a way out (e.g., shifting deadlines or re-scaling the scope) makes both parties feel more confident in committing to the deal.

How to Terminate an Independent Contractor Agreement?

You’ll have a safe termination if you already took care of a good exit plan. Here’s a how-to properly terminate the agreement:

1. Review the Termination Clause in the Contract

Before taking any steps, thoroughly read the termination clause in the contract. Most contracts (including the template we offer) include specific conditions under which either party can terminate the agreement. Here are some of the common types of termination

• Automatic termination,
• Breach of terms termination,
• non-performance, or
• Mutual agreement termination
• Termination for cause

Pay special attention to required notice periods, penalties, or conditions for termination.

2. Follow the Notice Period and Procedures

If the contract specifies a notice period (e.g., 30 days), you must provide the contractor with this notice before termination. Failing to give proper notice can lead to legal issues, including claims for breach of contract.

3. Provide Written Notice of Termination

Draft a formal, written notice of termination that outlines the reason(s) for ending the contract. It should include the effective termination date, any outstanding payments owed, and instructions on returning any company property or confidential materials.

📌 Remember: If you’re terminating for cause (e.g., failure to meet deadlines, breach of confidentiality), document the issues and refer to specific clauses in the contract.

4. Discuss Outstanding Payments and Deliverables

If the freelancer has completed part of the work, make sure to pay for completed deliverables in accordance with the contract.

❗Important: If the freelancer is handling ongoing projects, arrange for a smooth handoff or transition, if possible.

5. Document Everything

Keep a record of all communications and actions related to the termination, including emails, written notices, and payments made.

Laws Governing Independent Contractor Agreements

EU

While EU law does not have a unified, specific legal definition for independent contractors, member states generally distinguish between employees and self-employed workers based on factors like control over work, autonomy, and economic dependence. The EU Directive on the Posting of Workers sets standards for cross-border work arrangements, while some countries, such as France, have detailed laws addressing self-employment, including protections for gig workers.

Independent contractors in the EU are typically responsible for their taxes, but some protections, like access to social security benefits or pension schemes, may vary depending on the country. The EU’s Digital Services Act also addresses gig economy workers and attempts to balance worker protection with the flexibility of independent contracting. Misclassification or violations of these rules can lead to penalties and legal actions, especially as European countries increase scrutiny of gig economy work arrangements.

US

In the United States, independent contractor agreements are primarily governed by federal, state, and local laws. The Internal Revenue Service (IRS) is an indispensable part of these contracts. The IRS uses criteria such as the level of control the employer has over the worker, the worker’s independence, and the nature of the work relationship to determine whether a worker qualifies as an independent contractor.

Get a Free Independent Contractor Template

Start easily, securely, and quickly by filling out our free independent contractor agreement template. All you need to create a legally binding agreement is already included in our template. Just populate the placeholders with the client and freelancer’s information. You can also electronically sign it off from anywhere, using any device. Give it a try now!

Independent Contractor Agreement

An Independent Contractor Agreement is a legally binding contract between a contractor (self-employed) and a client (company or a person). A detailed description of service, payments, and deadlines are some of the main topics that are covered by this type of contract. Independent contractor agreements are usually created by the hiring party.

With our free independent contractor agreement template, you can quickly draft a well-written and legally binding contract that’s easily adjustable for different types of jobs and projects. Add the necessary data and share it with the freelancers to review and sign.

contract Use template

FAQs

Are Non-Compete Agreements Enforceable Against Independent Contractors?

Yes, non-compete agreements can be enforceable against independent contractors, but their enforceability depends on factors like jurisdiction, reasonableness, and the specific terms of the agreement.

Do Non-Disclosure Agreements Apply to Independent Contractors?

Yes, non-disclosure agreements (NDAs) can apply to independent contractors, and they are often used to protect sensitive information. When independent contractors have access to confidential business information, an NDA helps ensure that they do not disclose or misuse that information during or after their contract.

How Often Must an Independent Contractor Agreement Be Renewed?

An Independent Contractor Agreement must be renewed based on the terms outlined in the contract. Periodic reviews, typically every 6 to 12 months, are common to assess the ongoing nature of the relationship and to adjust terms as needed, such as changes in scope or payment.