Independent Contractor Agreements in Phoenix

Enlisting the help of independent contractors to complete specific projects is becoming more and more common for business owners in Phoenix. If you have just hired an independent contractor, you may be tempted to have the worker start immediately.

However, by failing to take the time to create an Independent Contractor Agreement, you are much more likely to run into misunderstandings down the road. Here’s a closer look at what Independent Contractor Agreements establish and 8 reasons you need one.

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What is an Independent Contractor Agreement?

An Independent Contractor Agreement is a written contract between a client and an independent contractor that outlines the specific terms and conditions of a new working relationship.

When an Independent Contractor Agreement is Needed

Typically, Independent Contractor Agreements are used when a company needs to hire out for specialized skills or expertise that they don’t have in-house to complete a specific project or task.

If you’re looking to redesign your website, for example, you may want to hire an independent web designer. In this case and depending on the scope of the project, having an independent contract agreement in place may be a good idea.

What an Independent Contractor Agreement Includes

Several key components make up an Independent Contractor Agreement. Generally, these agreements include the following details:

Identification of the Parties

Names, contact information, and other identifying details of the client/hiring company and the independent contractor are included in the agreement.

Scope of Work and Deliverables

A detailed description of the specific tasks, services, and deliverables the contractor will provide is usually outline in the agreement. Also included is a timeline for completion, including any milestones or deadlines, and any provisions for changes to the scope of work.

Payment and Compensation

An Independent Contractor Agreement includes specific payment terms, including the agreed-upon rate, frequency of payments, and any expenses that will be reimbursed. Provisions for cancellation fees, deposits, and discounts are also included.

Confidentiality and Non-Disclosure

If you need the contractor to sign an NDA or otherwise keep confidential information private, this is also included in the agreement. This includes restrictions on the contractor’s ability to disclose or use the client’s confidential information.

Intellectual Property Rights

This addresses the ownership of any intellectual property created by the contractor during the engagement. This also includes rights and responsibilities regarding the protection and registration of intellectual property.

Duration and Termination

This includes the length or term of the agreement, such as the duration of the project or the specific period for which a contractor is being hired. It also includes conditions and notice periods for terminating the agreement by either party.

Liability, Indemnification, and Benefits

Limitations on the contractor’s liability is also addressed in the Independent Contractor Agreement. Further, clarification that the contractor is not an employee and is responsible for their own benefits is stated here.

Exclusivity and Non-Compete

Any restrictions on the contractor working with other clients during the engagement will be outlined in the agreement. Any non-compete clauses limit the contractor’s ability to work for competitors.

Dispute Resolution

In the event of a dispute during the project term, steps for resolution between the parties will be outlined in the agreement.

Eight Reasons An Independent Contractor Agreement is Needed

If you’re not sure if an Independent Contractor Agreement is needed, whether for yourself or your business, here are 8 common reasons establishing one is a good idea.

1.   Provides Worker Classification

Worker classification is important for legal and tax purposes. An Independent Contractor Agreement can establish a non-employee relationship and outline that the independent contractor is responsible for their own taxes and not eligible for employee benefits.

However, the agreement doesn’t guarantee protection from a misclassification ruling or audit and employers must still comply with independent contractor regulations.

2.   Outlines Project Details and Expectations

An Independent Contractor Agreement can help avoid miscommunication by clearly outlining project details such as work description, communication method, progress monitoring, review process, final project details, and delivery method. However, keep in mind that the agreement should not include details about where or when the contractor will work as you cannot control these factors.

3.   Establishes Clear Deadlines

When working with independent contractors, one of the most common challenges is dealing with missed deadlines. A solution to this is to have an Independent Contractor Agreement in place. By outlining a specific due date and setting up a timeline for completing tasks, both you and the contractor can work towards meeting deadlines. You can also include provisions in the agreement that outline the consequences of missed deadlines, which can help ensure that everyone stays on track.

4.    States Agreed-Upon Payment Terms

An Independent Contractor Agreement can include payment details, making it clear what the parties agreed upon. Along with containing the final payment amount, the agreement can include how and when the contractor will be paid and who will be responsible for materials and expenses. Often there is additional work outside the scope of the original agreement required. The Independent Contractor Agreement can include how the contractor should bill extra work.

5.    Includes Confidentiality And Non-Disclosure Details

A significant part of a business’s success depends on its ability to protect its secrets. An Independent Contractor Agreement can prevent the contractor from sharing confidential information with competitors with the inclusion of a non-disclosure clause. Having this clause is critical if the independent contractor will have access to sensitive or personal information, such as financial information, business plans, and trade secrets.

6.    Addresses Intellectual Property Ownership

Unless the Independent Contractor Agreement includes an assignment of intellectual property, your business will not own the rights to any intellectual property created by the independent contractor. The independent contractor will be able to use, sell, or disclose any IP they created, even to your competitors. However, through the Independent Contractor Agreement, you can assign the IP to your business.

7.    Manages Disputes

When working with an independent contractor, disagreements or disputes may occur. However, potential headaches can be avoided by including provisions for dispute resolution in your Independent Contractor Agreement. Mediation or arbitration can also often be a more cost-effective and efficient way to resolve disputes than going to court, which can be a lengthy and expensive process.

8.    Outlines Termination Details

The final reason to have an Independent Contractor Agreement in Phoenix is to plan how and when the agreement will end. Along with stating an end date, the agreement can include the consequences of early termination by either party. It can be beneficial to include a notice requirement for termination.

Limitations of Independent Contractor Agreements

While an Independent Contractor Agreement covers many of the critical aspects of a new working relationship, there are still limitations to be aware of. Here are some limitations to note:

  • Lack of control: As an independent contractor, the client has limited control over how the contractor completes the work. The contractor has more autonomy in determining their own work methods
  • Short-term relationships: Independent contractor engagements are typically for a specific project or limited duration rather than a long-term employment relationship.
  • Potential misclassification: There is a risk that an independent contractor could be reclassified as an employee, exposing the client to liability for unpaid taxes and benefits.
  • Lack of benefits: Independent contractors are not entitled to the same benefits as employees, such as health insurance, retirement plans, paid time off, etc.

Ultimately, the key limitations of an Independent Contractor Agreement can vary with each working relationship. This is why understanding these limitations is important when entering into an Independent Contractor Agreement.

Reach Out To A Business Planning Attorney

If you have questions about an Independent Contractor Agreement or want one drafted, you should reach out to a local Phoenix Business Planning Attorney. Nicole Pavlik is an experienced Phoenix attorney who will prepare an Independent Contractor Agreement that fits your needs and protects your business from liability. Call Nicole Pavlik today for a free consultation at (602) 635-6176.

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