Written independent contractor agreements provide you with legal protection.

For most types of projects you might hire an independent contractor to do, the law does not require you to put anything in writing. You can talk to the independent contractor, agree on the terms of your arrangement, and have an oral contract or agreement that is legally binding.

The Importance of a Written Agreement

Oral agreements invite costly misunderstandings because there's no clear written statement of what the independent contractor is to do, how much you are to pay, or what the two of you will do if a dispute arises.

These misunderstandings might be innocent -- you and the independent contractor genuinely may have different memories about what you agreed to -- or they may be purposeful. Either way, it will be your word against the worker's, and there is no telling whom a judge or jury will believe. It's much safer to rely on a written document that clearly sets out the details of your relationship.

Even more important, a written independent contractor agreement can help establish a worker's independent contractor status by showing the IRS and other agencies that both you and the worker intended to create a hiring firm/independent contractor relationship, not an employer/employee relationship. (But don't expect the written agreement to be a magic bullet: A written agreement is useless if you still treat the worker like an employee.)

Important Terms to Include in Your Written Agreement

A written independent contractor agreement should contain at least the following terms:

• a description of the services the independent contractor will perform
• a description of how much you will pay the worker (usually either a fixed fee for a finished product or a sum based on unit of time -- for example, by the hour or by the week)
• a description of how and when you will pay the worker
• an explanation of who will be responsible for expenses (true independent contractors are usually responsible for their own expenses)
• an explanation of who will provide materials, equipment, and office space (independent contractors usually provide these things, but not always)
• a statement that you and the worker agree to an independent contractor relationship
• a statement that the independent contractor has all of the permits and licenses that the state requires to legally do the work
• a statement that the independent contractor will pay state and federal income taxes
• an acknowledgment by the independent contractor that he is not entitled to any of the benefits you provide employees
• a statement by the independent contractor that he has his own liability insurance
• a description of the term of the agreement (for example, one week, one season, or until the project is completed)
• a description of the circumstances under which you or the independent contractor can terminate the agreement, and
• an explanation of how you and the independent contractor will resolve any disputes that arise between you.