Independent contractor agreements have always been a part of the IT tapestry. Still, over the years, Department of Labor has been scrutinizing these relationships more and more. Being vigilant in these factors as well as other legal considerations, means you can still leverage this relationship to get on demand specialized expertise and skills.
Often, when companies engage the services of independent contractors, they are quick to review the work they need done, come to an understanding, and get started as soon as possible, resulting in an oral agreement. Given the quick turnaround, they want to ‘keep it simple’. But, it is so important to create a written contract, formally known as an independent contractor’s agreement. Here are the major reasons your tech company needs this contract. Like any relationship, it will get tested when things come to an end.
Prevent Scope Creep by Defining Project Details
When engaging an independent contractor, especially for the first time, ensure that your written contract contains a well-detailed discussion of the work scope. Be sure to include a description of the work to be done, specific deliverables, key dates or deadlines, and what an acceptable final product should look like. Writing down these details will prevent missed deadlines and incomplete work. There should also be an agreed-upon process to follow in the event of unplanned changes that are outside the scope of work. Ensuring that there is a process for addressing scope creep can help tech companies to avoid difficult interactions, conversations, and disagreements as work progresses.
The agreement should also comprise an agreed bill rate and payment terms such as how and when payment will be made to an independent contractor and how you get an invoice. Payment must be entwined with concrete deliverables and discuss any possible additional costs or expenses that may be accrued.
Ensure Legal Protection for Your Company
Perhaps the most important function of a written consulting agreement is that it provides legal protection for your organization and the independent contractor involved. No one wants to incur the financial burden of a lawsuit, so it is in your best interest to include legal protections in the contract. Discuss insurance requirements, and ensure that the contractor understands what they need to provide and who (if anyone) must be listed as an additional insured.
You also want to put into writing guidelines around ownership of intellectual property and confidential information such as financial data, business plans, and trade secrets, if applicable to your business.
Develop Work Classification Status
One of the most dreaded risks of engaging independent contractors is misclassification. Thankfully, a written agreement is a good step for establishing an independent contractor’s status. To avoid misclassification, let your contract clearly state that you and the independent contractor agreed to an independent contractor relationship. Ideally, it shouldn’t be a personal contract but one with their company that is incorporated with an EIN. It should also include a statement from the independent contractor acknowledging that they are not entitled to any benefits provided to your employees and that they are responsible for paying their own taxes. It might also prove helpful to secure files that can be used as proof of self-employment, such as a business or professional license, proof of insurance, or business cards. If in doubt, it is always best to check your state’s department of labor requirements and your attorney.
Independent contractors are invaluable because they allow organizations to ramp up their skill pool without the overhead. Thereby helping the company save time and resources. However, the relationship between clients and contractors can only be successful when a well-thought-out and a well-detailed written contract is put in place.