How to create an independent contractor agreement

With 11.9 million people working as independent contractors in the U.S. as of July 2023, one of the first steps in hiring one is creating an independent contractor agreement. This document lays out how contractors will be hired and managed, regardless of their responsibilities and location.

Whether you hire contractors regularly or just occasionally, rushing to create agreements isn't smart. A solid template saves time and keeps things consistent.

Not sure if you should bring on your next all-star as a contractor or employee? Wondering if you need to convert an existing contractor to full-time employment? Find out using our Contractor vs. Full-Time Analyzer.

What Is An Independent Contractor Agreement?

An independent contractor agreement is a legal document that outlines the working relationship between you and a freelancer or contractor. It defines what work will be done, how much you'll pay, when it's due, and who owns the final product.

Without an independent contractor agreement, your entire arrangement is based solely on individual conversations. And that means there's a greater chance of a disagreement or misinterpretation that could affect your working relationship.

Do You Need An Independent Contractor Agreement?

Sure, there are plenty of excuses for skipping the paperwork, but that's unnecessary risk you don't need. Even small projects deserve protection.

Every contractor should sign an agreement—no exceptions. If they won't, find someone who will.

What Does An Independent Contractor Agreement Cover?

Overview

Every independent contractor agreement should begin with a brief outline stating the name of the client and the name of the service provider. This is also the best place to include the date and each party's contact information, including their physical address, email address, and phone number.

Scope of work

The scope of work section should include a clear description of the services to be provided, the duration of the relationship, and a timeline for deliverables. Providing this level of detail minimizes the risk of misunderstandings and ensures that both parties are working toward a common goal.

It's also important to include a clause detailing your expectations regarding the speed and quality of work. By clearly specifying your expectations, you can help ensure that the services are delivered to the highest standards.

Compensation

Clearly outline how the contractor will be paid, payment frequency, and invoicing procedures. For example, will you pay the contractor per project or by the hour? Will you pay after each project, once a week, or once a month? How do you want to receive and pay invoices?

A clear, detailed compensation section can help prevent payment disputes later.

Termination

Even if you have a good business relationship with an independent contractor, your engagement may come to an end at some point, and the termination clause should clearly define the process and any final payments, drawing on principles like those from the ILO regarding severance allowance or other separation benefits. Use the termination section of your agreement to address:

• A project completion date
• Unforeseen circumstances that could result in early termination
• How a notice of early termination should be provided (by either party)

It can be awkward to move on from an independent contractor, but a well-constructed termination section in your agreement can help clarify the situation.

Intellectual property and ownership

Independent contractors often work with multiple clients in a specific industry. Protecting proprietary information and work produced during your contractual relationship needs to be a priority. The agreement needs to address intellectual property ownership, particularly who has the rights to work created during the working relationship. It's important to include clear expectations to prevent any confusion. Not clearly defining this matter can lead to lengthy and costly legal disputes.

Furthermore, an intellectual property disagreement can be even more complex when dealing with an international contractor because laws vary from country to country.

Here's what every solid contractor agreement must include:

• Party details: Names, contacts, and legal information
• Work scope: Specific deliverables and timelines
• Payment terms: How much, when, and how you'll pay
• Termination rules: How either party can end the relationship
• IP ownership: Who owns the work created

How To Create An Independent Contractor Agreement

So, how do you actually create one of these agreements? It's simpler than you think. Every good contract follows the same basic structure:

• 1. Identify the parties: Start with the basics. Clearly state the legal names and contact information for your company (the client) and the independent contractor.
• 2. Define the scope of services: Be specific about the work to be performed. Outline the project, key deliverables, and any important deadlines. This clarity prevents scope creep and ensures everyone is aligned on expectations.
• 3. Detail compensation terms: Explain how, when, and how much the contractor will be paid. Specify if it's a fixed project fee or an hourly rate, and outline the invoicing and payment schedule.
• 4. Clarify ownership of intellectual property: State who owns the work produced during the contract. Typically, the client retains ownership of all work created for them, but this must be explicitly written down.
• 5. Outline termination conditions: Every engagement ends. Define the conditions under which either party can terminate the agreement, including the required notice period.
• 6. Include confidentiality clauses: If the contractor will have access to sensitive business information, include a non-disclosure agreement (NDA) or confidentiality clause to protect your company's data.

Legal Requirements For Valid Contractor Agreements

Here's the thing about contracts—they're not just paperwork. They're legally binding promises that courts will enforce. What makes them stick? These universal elements:

• Offer and acceptance: One party makes an offer to another, and the other party accepts it. A signed agreement serves as clear evidence of this.
• Consideration: Both parties must exchange something of value. This is typically the contractor's services in exchange for the client's payment.
• Intention to create legal relations: Both parties must understand and agree that the contract is legally binding and not just an informal arrangement.
• Capacity to contract: The individuals signing must be legally capable of entering into a contract (e.g., of legal age and sound mind).
• Certainty of terms: The terms of the agreement must be clear and unambiguous. Vague language can render a contract unenforceable.

Are Independent Contractor Agreements The Same In Every Country?

The need for an agreement stays the same worldwide, but two things can vary by country:

• Content: This is the information included in the agreement, such as the scope of work and compensation.
• Requirements: Some countries have laws for what an independent contractor agreement must include. This is important to keep in mind because employee misclassification rules vary between countries, and getting it wrong can have significant consequences. For example, the IRS states that companies may be held liable for employment taxes if they misclassify a worker without a reasonable basis. You need to know what your contractor's country of residence requires in its contract labor agreements.

Oyster makes it simple to hire contractors in over 180 countries worldwide. We take care of legal compliance in every country, so you can have peace of mind when working with contractors, regardless of location.

Getting Started With Global Contractor Management

A solid contractor agreement sets the foundation for success—a key factor considering that most independent contractors overwhelmingly preferred their work arrangement in recent surveys. It brings clarity, reduces risk, and aligns expectations from day one.

But global hiring? That's where things get complex. Managing compliance, payments, and contracts across countries requires expertise you might not have in-house.

Oyster provides locally compliant contract templates and a single platform to manage payments and onboarding for contractors in over 180 countries. You get the peace of mind that comes with expert-backed compliance, so you can focus on building your global team. Ready to hire talent anywhere? Start hiring globally.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.