It is becoming more and more common for business owners in Phoenix to enlist the help of independent contractors to complete specific projects or tasks. 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.
Below are eight reasons that you need an Independent Contractor Agreement in Phoenix, Arizona.
- Worker Classification
A worker’s classification has significant legal and tax implications for your business. An Independent Contractor Agreement can state that both the worker and business owner intend to create an independent contractor relationship, not an employer/employee relationship. Additionally, the agreement can make it clear that the independent contractor is responsible for paying their own state and federal taxes and is not eligible for any of the benefits the employer provides to its employees. Examples of benefits that may be available to employees, but not contractors, include insurance, vacation, and stock options.
An Independent Contractor Agreement will not protect you 100% from a misclassification ruling or audit. You still must follow independent contractor constraints, but the agreement provides substantial evidence of the intention to create an independent contractor relationship.
- Outline Project Details
A second reason to use an Independent Contractor Agreement is to clearly outline project details. Writing and agreeing to the details of the project helps to avoid miscommunication. The agreement can include information such as a description of the work to be completed, the method of communication, whether progress will be monitored, how the work will be reviewed, what the final project will look like, and how the work will be delivered. Keep in mind that you cannot control where and when the contractor will work, and these details should not be included in the agreement.
- Make Deadlines Clear
A common frustration with the use of independent contractors is missed deadlines. In an Independent Contractor Agreement, you can state and agree to a specific due date. Additionally, an Independent Contractor Agreement gives you and the contractor the chance to set a timeline for when specific tasks must be completed. You can also include the consequences for missed deadlines.
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.
- Confidentiality and Non-Disclosure
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.
- Assignment of 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.
- Dispute Resolution
Although it is never the desired outcome, disputes may arise while the independent contractor is working for your business. However, in an Independent Contractor Agreement, you and the contractor can agree in advance how disputes will be settled. Depending on your situation, it may be the best and least costly option to resolve disputes through mediation or arbitration rather than litigation, which can be expensive.
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.
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.