MBO Partners recommends documenting an independent contractor relationship in a written contract for good reason including:
2. Secure Legal Protection
A written contract is particularly important because it provides legal protection both for your company and for the independent contractor. In this regard, there are a few specific topics you’ll want to consider.
Independent contractors are responsible for providing their own insurance, but it is still smart to safeguard against the potential financial burden of a lawsuit. Depending on the type of service the independent contractor is providing, you may consider requiring general business liability insurance or additional insurances as needed.
You’ll also want to discuss and include rules around ownership of intellectual property, and confidential information such as financial data, business plans, and trade secrets, if applicable to your business.
Lastly, an indemnity clause can help manage potential risk. Mutual indemnification will commit both you and the independent contractor to compensating each other for any harm, liability, or loss that may arise out of the contract.
3. Establish Classification Status
One of the biggest risks of engaging independent contractors is misclassification. However, a written agreement is a great way to help establish independent contractor status.
Include a statement in the contract that says you and the independent contractor agree to an independent contractor relationship. The independent contractor should acknowledge that they are not entitled to any benefits provided to your employees, and that they are responsible for paying their own taxes. Along with a written agreement, it’s a good idea to keep anything on file that can be used as proof of self-employment such as a business or professional license, proof of insurance, or business cards.
Remember, you are establishing a business-to-business relationship—independent contractors are free to determine how, when, and where they work among other factors. A contract is a great way to establish project scope, communication, and management, but at the end of the day an independent contractor is not your employee and cannot be treated as such.
Read the full story at Three Reasons to Use a Written Independent Contractor Agreement | MBO Partners