Written independent contractor agreements provide legal protection.

For most types of projects you hire an independent contractor (IC) to do, the law does not require you to put anything in writing. You can talk to the IC, agree on the terms of your arrangement, and have an oral contract or agreement that is legally binding. Just because you can doesn't mean you should, however.

The Importance of a Written Agreement

Oral agreements invite costly misunderstandings because there's no clear written statement of what the IC has agreed to do, how much you have agreed to pay, or what the two of you will do if a dispute arises.

These misunderstandings might be innocent -- you and the IC may genuinely have different memories about what you agreed to -- or they may be purposeful. Either way, it will be your word against the IC'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 helps 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 IC 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 IC will perform
• a description of how much you will pay the IC (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 IC
• an explanation of who will be responsible for expenses (true ICs usually pay their own expenses)
• an explanation of who will provide materials, equipment, and office space (ICs usually provide these things, but not always)
• a statement that you and the worker agree to an independent contractor relationship
• a statement that the IC has all of the permits and licenses that the state requires to legally do the work
• a statement that the IC will pay state and federal income taxes
• an acknowledgment by the IC that he or she is not entitled to any of the benefits you provide employees
• a statement by the IC that he or she carries 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 IC can terminate the agreement, and
• an explanation of how you and the IC will resolve any disputes.

Other terms you could include range from copyright ownership to naming who will be responsible for the IC's employees.

Resources

Fortunately, an independent contractor agreement is something that you can create yourself. Two excellent sources for such agreements are Working With Independent Contractors (Nolo) and Consultant & Independent Contractor Agreements (Nolo), both by Stephen Fishman.