If people work for you, they are doing it one of three ways:
As a business (as evidenced by a business structure),
As an employee, or
As an Independent Contractor.
The IRS has been cracking down on Independent Contractors who perform personal services, trying to get them to become employees. That means extra tax, penalties and interest for you.
One of the things you must have to prove you really do have Independent Contractors is a signed agreement. Here are some of the things you’ll want to have in your Agreements.
Date – I can’t believe how many agreements get signed with no date! That’s one of the basics of contract law and if you ever end up fighting about something, how can you prove what you intended and from when? You need a date.
Who is the contract between? – This is where you list the parties and make sure you define any abbreviations you use for the parties. Don’t use abbreviations unless you’ve defined them.
Duties: If you’ve hiring an IC, make sure it’s very clear what they are doing. Spell out the tasks. But don’t tell them the hours they need to work, how they do it, or offer to furnish the space and tools to do it. Cross those lines and you’ve likely got an employee, not an IC. And that could mean a lot of trouble down the road with the IRS and state revenue agency.
No Employment Relationship: I go one step further and make sure the IC knows they are NOT an employee. Otherwise you could get caught up in actually having an employee complete with payroll tax and plenty of penalties and interest.
Term. How long does this ICA stay in force? How does each party cancel it? What happens at the end of the term?
Compensation. You might think “of course” you need to talk about how much money, but if you’re starting from scratch with your agreement, you can easily forget something like this.
Confidentiality. Very important! Make sure your IC honors your clients as much as you do. Also, make sure the confidentiality extends beyond the term of the agreement. Non-disparagement/ non-competition. Sometimes your relationships don’t work out as well as you hoped they would. Make sure they don’t try to steal your clients or talk badly about you.
Governing law. What state’s laws apply.
There are actually a half dozen more clauses that the ICA I use has. You can start one from scratch (scary), get one for free on the Internet (even scarier), pay a lawyer (expensive) or get a headstart with a good template.
To get a complete Independent Contractor Agreement template (the one I use) plus an audio and workbook program to walk you through the steps to make sure you have an Independent Contractor, please go to Winning the Independent Contractor Argument.