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How to Scrutinize an Independent Contractor Agreement

 

An independent contractor agreement is designed to protect both a worker and her employer. But, for new freelance workers, exactly what the agreement should include and what it should not, and the meaning of its other terms, can be confusing. Thoroughly read, understand and ask questions about any independent contractor agreement prior to signing one.

Which Party Maintains Tax Responsibility

Some employers will file W-2's or other tax documentation for an independent contractor as required, and others will place the burden of reporting tax on the contractor. Neither option is unacceptable, although it is desirable to have the company file on your behalf. Any independent contractor agreement should clearly state which party is responsible for tax reporting.

Ownership to Product

A freelance contractor is employed by a company, but is not on that company's staff. Because of this, it is sometimes difficult to discern which party, the contractor or the company, owns the rights to the contractor's finished product. The agreement should state who maintains ownership to the item prior to and during its use, and for how long that ownership lasts. For example, a magazine article may be the property of the contractor until its submission for publication, at which time it would become the magazine's property.

Also important aspect is the identification of whether, despite the company's ownership, the contractor may republish the item as long as credit is given to the magazine. This issue is increasingly important with Internet publishing and the ease of reproducing a particular item without giving credit, which is plagiarism.

Confidentiality Requirements

Whether and how an independent contractor is to maintain confidentiality of a company's secrets, process or other information is an essential clause in any employment contract. An independent contractor agreement should identify whether the employee has any right to retain copies of work, emails or records that are provided by the company (or made in the course of the contractor's assignment). How the contractor must eliminate the dissemination of company information or documents should be stated. For example, the contractor may need to delete all documents from a computer hard drive within five days of the project's completion.

Contractor Payment

How much the independent contractor will be paid and how regularly payment will be made should also be stated in the agreement. If the contractor will be paid hourly, the contract should state that fact and the agreed upon hourly rate; if the contractor will be paid on a per-project basis, how that amount will be calculated and when it will be delivered to the contractor should be identified. Many times, independent contractors are paid monthly or every six weeks, so do not be surprised if this appears in the contract.

Similarly, the contract should state the procedure for negotiating higher or lower rates of pay in the future. A contract that does not address this issue leaves open the potential for the employer paying less than the agreed upon price if they do not assign the entire job to the contractor. Prohibit such a one-sided decision by insisting that any changes in payment need to be discussed five days prior to the assignment's delivery.

Working as an independent contractor can earn quite a large salary, but requires the contractor to be extra diligent when signing an employment agreement. Review all sections of any contract an employer asks you to sign, keeping a particular eye on the issues discussed above.

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