In this article...
In this article, we will explain the different clauses and stipulations typically found on an independent contractor agreement. Properly drafted independent contractor agreement is to establish the relationship between your business and the independent contractor that you are contracting with will be seen as an independent contractor and a not an employee when viewed by the courts, and to protect your business should any legal disputes arise between your company and the independent contractor.
In this article, we will explain the different clauses and stipulations typically found on an independent contractor agreement.
As a business owner or worker, the two most common legal categories of people who will do work for a company are an employee and an independent contract. Having the proper legal contract created with professional legal input will ease your mind and the mind of your employees or independent contractors. Every business has its idiosyncrasies and the independent contractor agreement for your tech business may be different from your friend’s construction business. However, most independent contractor agreements share common causes and stipulations.
The purpose of properly drafted independent contractor agreement is to 1) establish that the relationship between your business and the independent contractor that you are contracting with will be seen as an independent contractor and a not an employee when viewed by the courts, and 2) to protect your business should any legal disputes arise between your company and the independent contractor.
Below is a list of some of the common items in an Iowa Independent Contractor agreement. While this list is not exhaustive it discusses the important items that should be found on almost all agreements:
- Parties Involved: This is pretty straight forward, but all parties associated with the work, including the person contracted for the work, the company contracting the work, the time-frame of work as far as it can be established, and any pertinent geographic information.
- Scope of Work: This category is crucial and is often the point of dispute when it comes to a legal case involving an independently contracted employee. You could argue that the independent contractor would want a more specific scope of work, detailing what the work involves, skills required, what is considered the completion of the project, etc, while the employer might want to have a broader scope of work as to provide a type of blanket coverage. Typically, when under legal scrutiny specific detail is better. Broader or more ambiguous scope of work leaves room for interpretation by the court, which creates uncertainty for both sides.
- Payment: This clause should detail the pay rate or sum for the work being done and completed and should reference the completion of work as detailed in the Scope of Work clause
- Due Date: There should be an agreement on a specific due date, no specific due date listed, or more detailed stipulations on certain deadlines associated with the project.
- Expenses and Taxes: In Iowa, there will normally be two options under this clause, 1) The independent contractor is responsible for all expenses and taxes, and 2) The independent contractor should be reimbursed for designated expenses directly associated with the services under the agreement. In the second scenario, a stipulation should be included indicating in what time-frame the independent contractor is to be paid after the company has received the itemized expense statement. Having the independent contractor be responsible for all expenses and taxes is typically the safest choice with regard to having the agreement appear as a true independent contractor agreement in court.
- Liability Insurance: It is normal for an independent contractor to have their own liability insurance coming into a job or before starting a job. This clause can also stipulate a minimum dollar amount of liability insurance.
- Termination/Option to Terminate: This clause should contain the stipulations for termination of the contract. This does not necessarily mean termination as in being fired, but rather the end of the contract. It may contain multiple stipulations, such as a specific date the project ends, whether completed or not, termination upon completion or some other written agreement on contract termination. A note of caution with IC termination clauses in Iowa: Both sides should avoid one or the other including a “termination for any reason at any time,” clause in the agreement. Under the court of law in Iowa, this would indicate an “employee at will” agreement and could lead to some legal headaches. Instead, it is best to include language stating a time-frame for notice of termination due to material breach of the contract or actions from either party exposing the other party to personal injury or property damage.
- Independent Contractor Status Under the IRS: This clause can be confusing as written on most contracts, but it is essentially language reinstating that the independent contractor IS actually an independent contractor and includes other stipulations, such as the contractor nor the contractor’s employees being required to wear uniforms provided by the client, and other stipulations explaining the relationship between an IC and a company as laid out by the IRS.
- Licenses, Permits, Etc: The independent contractor is agreeing that they and their employees have, or will acquire all the proper licenses, permits, etc for the work to be done.
- Taxes, Benefits, and Compensations: Under an independent contractor agreement these clauses would stipulate that any taxes, benefits, compensations, etc would be the responsibility of the independent contractor. These clauses typically apply to employees of the independent contractor.
- Indemnification: The independent contractor shall indemnify and hold the client harmless from all liability and loss associated with the contracted project.
- Confidentiality: This clause discusses the likelihood of the contractor being given confidential business information and the agreement to not share this information with a third party unless expressly written and agreed upon by the client
- Proprietary Information: This section illustrates what is considered proprietary information under the contract and discusses clients’ rights with regard to that proprietary information. Typically, the company is protecting any and all proprietary information so the independent contractor can’t just take it to another company and profit.
- Non-compete: At times it may be important for the client to create a clause stating the contractor cannot engage with another business similar or different from yours and within a certain geographic area. Non-competes can sometimes be difficult to enforce, but should always be included if necessary.
- Enforcement: Having a clause that legally holds either party liable for costs associated with a breach of contract or costs associated with legally enforcing the contract may seem harsh, but it will give peace of mind to both parties and serve to make enforcement of the contract affordable if a dispute arises between the client and contractor. Without an enforcement clause, the cost of hiring legal help to enforce the contract might outweigh the cost of the job itself.
This list is by no means exhaustive and every client-contracting relationship is different. Due diligence on both sides and working with a good attorney can help you avoid common headaches associated with independent contractor cases. Review your situation and draft an appropriate contract for the work to be done.
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