At the end of this post, there is a free template of an Independent Contractor Agreement that can be used as a starting point when drafting a contract with foreign workers.
What is an independent contractor agreement?
A legally binding document signed between a company and an independent contractor is referred to as an independent contractor agreement. It specifies the work to be done as well as the conditions under which it will be done. Essentially, it allows both the company and the contractor to agree on the specifics of their partnership.
Contractor agreements are crucial because they define the relationship between the company and the contractor and spell out the work requirements. They provide explicit instructions to the company and the contractor about how long the job should take and how payments will be made. They also describe what benefits, if any, would be provided to the contractor and how the two parties will resolve issues.
Independent contractor agreements may also protect the company from liabilities if the arrangement does not work out.
Contractor contracts may be long and complex. They may include sophisticated legal jargon as well as crucial information regarding the business relationship. Fortunately, if you know what parts they want, independent contractor agreements are extremely simple to draft.
When do you need an independent contractor agreement?
Some nations have labor regulations that require contractors to have formal contractor agreements. Informal verbal agreements are adequate in other nations. However, for clarity and peace of mind, we always advocate putting in place solid, documented independent contractor agreements.
Who is considered an independent contractor?
Let's go over how to tell the difference between contractors and employees in more detail. This way, you can be certain about the kind of workers you should recruit.
The grounds for distinguishing between foreign independent contractors and employees may vary by country. The main difference between employees and contractors in Australia is whether they work for themselves or for your company. Meanwhile, Canada prefers to balance numerous elements in its decisions.
However, the major distinction between the two groups may be boiled down to a few key elements:
- Degree of independence
One of the most important distinctions between employees and contractors is their connection with the company.
Employees often work for a company, and the company has great influence over the job they perform and how they do it. Companies often expect them to work particular, regular schedules and to complete the duties assigned to them by their superiors. Managers also provide oversight, guidance, and training to employees.
Contractors, on the other hand, work for themselves rather than for your company. They have a high level of control and autonomy over their job.
Contractors choose the projects they want to work on, often by making bids for them. If they have supervisors, they are usually members of the contracting team rather than company management. They may normally work when and how they choose as long as they satisfy the deadlines and any other restrictions specified in their contracts.
- Payroll withholding taxes
When you hire someone, you add them to the payroll of your company. Your payroll department issues their paychecks on a regular basis. When you do this, you deduct payroll taxes from their salaries, resulting in a net pay that is less than their total gross pay.
Employee payroll taxes are often used to fund social security programs. These programs provide funding for benefits such as healthcare, retirement pensions, and disability pensions. Typically, your company pays a tiny portion of its workers' earnings to the same programs.
When you deal with contractors, on the other hand, they are not added to your payroll. You do not withhold payroll taxes or contribute to social security programs on behalf of your contractors.
You pay contractors the total gross amount they have earned when their tasks are completed, or on whatever timeline their contracts dictate. Each year, contractors must account for their own social security payments with their income taxes.
- Benefits
When you recruit employees, you are typically required by law to provide certain benefits. The details of the benefits differ depending on the nation. For example, if your nation has a robust public healthcare program, you may not be required by law to provide health insurance to your employees. However, you must typically supply some kind of advantage. Health insurance and paid vacations, vacation days, sick leave, and maternity or paternity leave are often included.
These benefits are not available to contractors. They must go without health insurance or buy their own, and they are not paid if they take time off between contracts.
Contractors may sometimes expect more compensation than employees in the same field to compensate for the benefits they forego.
Why is worker categorization important?
It is critical to get your worker categorization right since misclassifying employees as contractors may have serious financial ramifications for your company.
If a judge determines that your company wrongly classified employees as contractors, you may face legal penalties. You will be held accountable for any accrued payroll taxes owed to the government. Furthermore, you are often held accountable for years of back pay in the form of benefits that your contractors should have received.
Your company may wind up owing hundreds, if not millions, of dollars. The implications are extremely severe if the misclassification has been ongoing for years or if there are a substantial number of misclassified workers. Your reputation as a trustworthy, ethical firm will most certainly suffer as well. Fortunately, by being thorough in your research and classifications, you can maintain your company legally compliant.
Why do companies need formal contractor agreements?
Companies need formal agreements with contractors for a variety of reasons. They clearly clarify the connection between the company and the contractors. They also supply valuable information to tax authorities such as the Internal Revenue Service (IRS) in the United States, the Canada Revenue Agency (CRA) in Canada, and the Tax Administration Service (SAT) in Mexico, to name a few.
The following are some of the particular benefits of signed independent contractor agreements:
Establish worker status: A formal independent contractor agreement will assist you improve the clarity of your company collaboration. One of the primary benefits of independent contractor agreements, for example, is that they clearly identify your contractors from your employees. This difference defines what you owe your contractors and makes it easier for everyone to grasp the parameters of the partnership. A written contractor agreement also informs authorities such as the IRS or the SAT about the contractor's tax status.
Preventing misunderstandings: By providing such clarity, you can prevent expensive misunderstandings. Many employees, for example, get benefits from the companies for which they work, while the majority of contractors do not. Having solid independent contractor agreements in place helps prevent contractors from arguing they should have gotten certain employee benefits in the past.
Demonstrate commitment: A contractor agreement is, in many ways, a good faith gesture. By signing it, your company and your contractor demonstrate your shared commitment to a positive working relationship and a high-quality completed product.
What does a standard independent contractor agreement include?
Each independent contractor arrangement is unique. Your company's demands and criteria would most likely vary from contract job to contract job. One task may enable contractors to take their time on the project, polishing every aspect, but another may need meticulous work to be completed on a tight schedule.
To be powerful, comprehensive, and protective, each contractor agreement must have the same fundamental characteristics. Let's take a deeper look at the contents of a typical independent contractor agreement.
1. Business relationship
The working connection is clarified through a simple independent contractor agreement. It denotes that the worker is a contractor rather than an employee. It also explains what the contractor should anticipate from the company.
This part should include include the contractor's remuneration for the finished job. If your company operates in a nation other than your own, indicate the compensation amount in the local currency.
It is also necessary to specify the company's and contractor's tax requirements. Companies should be clear that they will not withhold taxes from contractors' profits, thus contractors must pay their own social security payments.
2. Work scope
A solid independent contractor agreement describes the nature of the job that will be performed by the contractor. It should contain the precise tasks that must be completed, the project deadline, and the remuneration that the contractor will get in return.
Your contractors' deliverables are often explicit and straightforward. The contractor agreement may, for example, define the construction of numerous buildings in an office complex or the creation of three advertising promoting a new healthcare program.
However, with more creative work, you may not have a specific end goal in mind; defining one is part of the contractor's job. In such situation, make careful to state your goals as clearly as possible so that the contractor knows what you anticipate.
3. Benefits
A solid written contractor agreement should define what benefits a contractor gets, if any. It usually states that the contractor will get no benefits. The agreement should state unequivocally that the contractor will not be provided with health insurance or paid time off.
A benefits section is essential for avoiding misconceptions. By clearly saying that your company does not offer contractor benefits, you provide clarity to your contractors. They cannot afterwards claim that they believed they were entitled to benefits when the contract expressly indicates otherwise.
4. Accountability
The liability part of a contractor agreement, often known as the indemnity provision, is critical for your company's legal protection. It specifies who will be held accountable in the event of on-the-job accidents or legal problems resulting from your contractor's work.
The indemnification provision often states who is accountable for the work's expenditures, such as paying any licensing fees.
This part should be used by your company to detail the contractor's responsibilities for fees, expenditures, and any legal judgements incurred. Make it clear that by signing the agreement, the contractor agrees to indemnify your company for any claims or damages incurred as a consequence of the contractor's work or activities.
In many circumstances, your company will also wish to utilize this area to request evidence of liability insurance from your contractors. Liability insurance is a wise idea, particularly for physically demanding industries like construction. This insurance helps cover expenditures if contractors are harmed on the job or if their work causes legal problems for your company.
5. Intellectual property rights
Intellectual property rights
Many contractor agreements include a provision detailing who owns the intellectual property created by the contractor for the company. If your company desires to preserve intellectual property rights, declaring this explicitly in the contractor agreement might help to avoid future legal ownership problems.
Intellectual property rules range from one nation to the next. When a result, explicitly expressing your company rules in contract agreements is critical for your protection as your company expands worldwide.
5. Confidentiality
A confidentiality provision is common in independent contractor agreements. These provisions state that contractors are not permitted to share, utilize, or disclose sensitive information obtained while working for your company with outsiders.
Make it a point to define what your company deems sensitive information. It might be patents, trade secrets, private financial information, or client lists, for example. Providing this clarity allows your contractors to understand what they may and cannot reveal to others.
7. Noncompete agreement
Similarly, noncompete provisions are common in contractor agreements. These provisions are more widespread in certain businesses than others, such as business services, wholesale commerce, banking, and real estate.
Noncompete provisions often force contractors to refrain from working for any of your direct rivals for a certain period of time after finishing their contracts. They may also forbid contractors from establishing their own firms during the same term. They decrease your direct competition while while protecting your company's interests.
8. Requirements for termination
Your independent contractor agreements should state when you have the right to cancel the agreement, when the contractors have the right to terminate the agreement, and what compensation they will get in either instance.
For example, you may state that either your company or the contractor has the right to cancel the agreement at any time, for any reason, with 48 hours' notice. You may also indicate that you have the right to cancel the agreement if the contractor fails to meet the deadline or performs subpar work.
9. Dispute Resolution
It is crucial to include a section on dispute resolution since it clarifies how you will address issues. When your company operates in another nation, be sure to state which country's laws will apply to dispute resolution in this area. You should also clarify whether you intend to handle problems internally or via third-party mediation services.
Even if you expect to never utilize your dispute resolution provisions, they provide you and your contractors with essential piece of mind. They demonstrate your sincere desire to settle any difficulties equitably and truthfully.
How to Work Out an Independent Contractor Agreement with a Prospective Hire
When you've decided on a contractor to employ, you must agree on and execute an independent contractor agreement with that individual. Here are a few pointers to help you smooth out the kinks:
Solicit feedback: Many contractors have years of industry expertise. They may feel comfortable telling you what remuneration and conditions work best for them. You may typically match their regular prices and criteria in your contract conditions, especially with more seasoned contractors.
Compensation is based on employee salaries: In certain circumstances, your contractors will be paid much more than your employees. However, contractor wages are frequently extremely similar to employee rates, particularly for longer-term contracts. In such situation, calculate what you would pay an employee over the same time period and use that number as the starting point for talks.
Consider the following unusual circumstances: Certain circumstances may require increased remuneration for your contractors. If your company is recruiting for short-term contracts, for example, you may need to offer higher pay rates since such jobs may be difficult to fill. Of course, if the contractors have highly specialized or difficult-to-find talents, you may also need to give a higher compensation rate.
Follow the rules: Keep in mind that various nations have varied regulations regulating the classification, employment, and payment of contractors. You must investigate and follow the rules in your region.
When you hire independent contractors, you have tax duties.
Generally, your company should not owe payroll taxes to its contractors. You will not make any contributions to social security on their behalf. You pay your independent contractors their gross earnings, and they are then liable for their taxes.
Certain nations, however, have exceptions to this rule, so you may have certain tax reporting requirements to the jurisdiction in which you operate. The United Kingdom, for example, has enacted "anti-avoidance" fees to reduce worker misclassification. Companies are required by law to pay taxes on their contractors if the contractors conduct work that is substantially comparable to that of employees.
Check with local tax professionals to discover what, if any, tax responsibilities you will have.
(Free Template) International Independent Contractor Agreement:
International Independent Contractor Agreement
International Independent Contractor Agreement made on the _______ day of __________________, 20_______, between ________________________ (Name of Contractor) of _____________________________________________ (Street Address, City, County, State, Zip Code), referred to herein as Contractor, and ________________________, a corporation organized and existing under the laws of the state of ________________________ (Name of State), with its principal office located at _____________________________________________ (Street Address, City, County, State, Zip Code), referred to herein as the Corporation, and
For and in consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
I. Ownership of Deliverables. All computer software, patentable inventions, and any other Deliverables to be produced by Contractor shall be a work made for hire as that term is defined for copyright and other purposes, and shall be and become the property of the corporation which shall have all and exclusive rights to same. Contractor hereby assigns all rights to Deliverables to the Corporation. To the extent necessary, Contractor agrees to execute any additional documents necessary to transfer copyright, patent rights, ownership of, and all other rights in Deliverables produced by Independent Contractor.
II. Place of Work. The Independent Contractor shall perform the work described hereunder from a place of business located at _____________________________________________ (Street Address, City, County, State, Zip Code).
III. Time Devoted to Work. In the performance of the Services, the amount of time devoted by the Independent Contractor on any given day will be entirely within the Independent Contractor's control, and the Contractor shall rely on the Corporation to put in such number of hours as are necessary to fulfill the requirements of this Agreement.
IV. Payment. The Contractor will pay the Independent Contractor the sum of
$__________________, in installments as follows: _____________________________________________ (describe installments).
V. Term. The term of this Agreement shall commence on the date it is executed by the last to sign and shall continue through __________________ (date). Either Party may terminate this Agreement for failure of the other to comply with the terms and conditions of this Agreement. In addition, the Contractormay terminate at any time on _______ (number) days’ written notice. If terminated at the will of the Corporation, Contractor will pay for all services satisfactorily performed up to the termination date. Upon the expiration of the term hereof or earlier termination of this Agreement, Independent shall deliver completed work to date and any records or other property belonging to the Corporation.
VI. Assignment. The Independent Contractor shall not assign, subcontract or transfer all or any portion this Agreement or any of its obligations hereunder without the express, prior written permission of the Corporation.
VII. Status of the Independent Contractor. The Corporation and Contractor intend that the relationship between them shall be that of client and independent contractor. No agent or employee of Contractor shall be or shall be deemed to be an employee or agent of the Corporation. The Corporation is interested only in the results obtained under this Agreement consistent with this Agreement. The manner and means of conducting the work are under the sole control of the Contractor. None of the benefits provided by the Corporation to its employees, including, but not limited to, worker’s compensation insurance and unemployment insurance, is available from the Corporation to the Contractor, or the employees, or agents of Contractor. Contractor will be solely and entirely responsible for his acts and for the acts of his agents, employees and subcontractors during the performance of this Agreement. The work performed under this Agreement will be performed entirely at the Contractor’s risk. The Contractor agrees to indemnify the Contractor for any and all liability or loss arising in any way out of the performance of this Agreement.
VIII. Corporation’s Right to Inspect. Although Contractor has the authority to control and direct the performance of the details of the work, the work contemplated herein must meet the Corporation's standards and approval and shall be subject to the Corporation's general right of inspection to secure the satisfactory completion thereof. Contractor agrees to comply with all federal, state, and local laws, rules and regulations that are now or hereafter applicable to the Contractor or Contractor's business. The Contractor will designate a representative who shall be authorized to act for the Contractor in all matters related to Contractor's performance of the Services.
IX. Warranty. The Contractor warrants that his performance of this Contract does not violate any applicable law, rules or regulation. The Contractor further warrants that he shall perform this Contract in a timely and professional manner with necessary skill and diligence and that the services provided herein meet or exceed the prevailing practices and standards of the trade from which the services are provided. To the extent that the Contractoris held financially responsible for any deficiencies in the services performed by the Contractor, he agrees to cure such deficiencies at the sole cost to the Contractor.
X. Foreign Corrupt Practices Act. Contractor represents and warrants to the Contractor that it is aware of the requirements of the United States Foreign Corrupt Practices Act (the FCPA) and will not take any action that could violate the FCPA or expose the Contract or to liability under the FCPA. Specifically, Contractor represents and warrants that, in connection with this Agreement, Contractor has not provided and will not provide, offer or promise to provide, or authorize the provision directly or indirectly of, any money, gift, loan, service or any thing of value to any government official (or any agent, employee or family member thereof), any political party or candidate for political office, or any third party, for the purpose of influencing or inducing any act, omission or decision of such government official or candidate, or of the government to obtain or retain business, or direct business to any person, or to secure any improper advantage.
XI. Nondiscrimination. The Contractor warrants that during his performance of this Agreement, Contractor, or any of its employees, agents, or subcontractors, will not violate any of the discrimination laws of the United States, including, but not limited to, on the basis of age, sex, sexual orientation, race, color, religious belief, national origin, marital status, status as a qualified individual with a disability or handicap or as a disabled veteran.
XII. Force Majeure. The Contractor and the Contractor shall be mutually relieved from any liability as a result of the onset of a force majeure condition. For the purposes of this Contract, Force Majeure means an event which is beyond the reasonable control of a Party and which makes a Party's performance of its obligations under the Contract impossible or so impractical as reasonably to be considered impossible under the circumstances, and includes, but is not limited to, war, riots, civil disorder, earthquake, fire, explosion, storm, flood or other adverse weather conditions, strikes, lockouts or other industrial action (except where such strikes, lockouts or other industrial action are within the power of the Party invoking Force Majeure to prevent), confiscation or any other action by government agencies.
XIII. Restricted Countries. The Contractor may not charge under this Agreement any item which has a source/origin from any restricted countries, as designated by the US State Department. Restricted countries currently include, but are not necessarily limited to Cuba, Iran, North Korea, and Syria.
XIV. US Executive Order Prohibition. The Independent Contractor is notified that U.S. Executive Orders and statutory law prohibit transactions with, and the provision of resources, and support to, individuals and organizations associated with terrorism. It is the legal responsibility of the Independent contractor to ensure compliance with these Executive Orders and laws. In addition to relying on locally available resources, the Independent contractor may use resources available on the internet to review established lists published by the US Government. These are located at:
http://www.treasury.gov/resource-center/sanctions/Pages/default.aspx.
Hiring individuals or contracting with organizations on this list is strictly prohibited under the terms of this Agreement.
XV. Use of Name. Contractor agrees that no public or private announcements, media releases, press conferences, advertising or similar publicity in any form relating to Corporation’s name, image, or logo (or any variation or combination of such name, image, or logo), as well as the name or image of any Contractor’s employee, student, or patient shall be made without the prior written consent of Corporation, which consent may be withheld in Contractor sole and absolute discretion.
XVI. Severability. The invalidity of any portion of this Agreement will not and shall not be deemed to affect the validity of any other provision. If any provision of this Agreement is held to be invalid, the (Parties) agree that the remaining provisions shall be deemed to be in full force and effect as if they had been executed by both (Parties) subsequent to the expungement of the invalid provision.
XVII. No Waiver. The failure of either Party to this Agreement to insist upon the performance of any of the terms and conditions of this Agreement, or the waiver of any breach of any of the terms and conditions of this Agreement, shall not be construed as subsequently waiving any such terms and conditions, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred.
XVIII. Governing Law. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of ________________________ (Name of State).
XIX. Notices. Unless provided herein to the contrary, any notice provided for or concerning this Agreement shall be in writing and shall be deemed sufficiently given when sent by certified or registered mail if sent to the respective address of each Party as set forth at the beginning of this Agreement.
XX. Attorney’s Fees. In the event that any lawsuit is filed in relation to this Agreement, the unsuccessful Party in the action shall pay to the successful Party, in addition to all the sums that either Party may be called on to pay, a reasonable sum for the successful Party's attorney fees.
XXI. Mandatory Arbitration. Any dispute under this Agreement shall be required to be resolved by binding arbitration of the Parties hereto. If the Parties cannot agree on an arbitrator, each Party shall select one arbitrator and both arbitrators shall then select a third. The third arbitrator so selected shall arbitrate said dispute. The arbitration shall be governed by the rules of the American Arbitration Association then in force and effect.
XXII. Entire Agreement. This Agreement shall constitute the entire agreement between the Parties and any prior understanding or representation of any kind preceding the date of this Agreement shall not be binding upon either Party except to the extent incorporated in this Agreement.
XXIII. Modification of Agreement. Any modification of this Agreement or additional obligation assumed by either Party in connection with this Agreement shall be binding only if placed in writing and signed by each Party or an authorized representative of each Party.
XXIV. Assignment of Rights. The rights of each Party under this Agreement are personal to that Party and may not be assigned or transferred to any other person, firm, corporation, or other entity without the prior, express, and written consent of the other Party.
XXV. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument.
WITNESS our signatures as of the day and date first above stated.
