An independent contractor agreement is a contract between a non-employee and an employer to process a contract. You can refer to independent contract agreements as 1099 contracts, freelance contracts, or subcontractor contracts.
What is this type of job?
An independent contractor is a freelance worker who offers temporary work to another person or company. They are also known as freelancers. Contractors can also own a business that serves the public, such as a veterinarian or a lawyer.
The employer can only determine the results of the assigned work and not the process. You can earn an independent contractor status based on whether you are receiving employee benefits and whether the employer will handle the financial aspects of the contractor’s work.
Since the IRS classifies independent contractors as self-employed, they are subject to the tax requirements for self-employed workers. They must fill out a W9 form to file tax, and any employer who has paid them at least $600 for their work must send them an IRS Form 1099 for that tax year.
The usefulness of this agreement
An independent contractor agreement is a document that an employer uses to hire a self-employed person for a specific job. The extension differentiates the contractor from an employee of the company for legal and tax reasons.
The contract sets out the details of the work, from the service provided and the duration of the working hours to the payment of the contractor. As with any employment contract, certain clauses bound the independent contractors. These protect the employer, including
- Non-advertising agreements
- Non-disclosure agreements
- Non-compete agreements
In addition, the agreement contains a written clause that determines copyright ownership (on behalf of the contractor or employer) for all created by the worker.
When should I use an independent contractor agreement?
Both employers and the self-employed can enter into an independent contract, although the former usually initiate the hiring process. In general, there are benefits for both parties to using an independent contractor agreement.
- Specific project or use of a specialist. That way, you can cut costs by not having to provide any employee benefits or pay taxes on them.
Using independent contractors also gives you more flexibility in performing non-essential tasks that do not require full-time employees. There is also less paperwork involving hiring, filing taxes, and firing contractors.
- For independent contractors. While they may not get the same benefits as employees, they do give you more flexibility in the way you work. As a self-employed person, you also have a lower tax liability with corporate deductions. Your income does not withhold any tax when you receive payment.
How to hire an independent contractor
Hiring an independent contractor for your company involves several steps and documentation necessary to maintain the relationship between a professional and an employer.
Properly classify an independent contractor
- For tax purposes, the IRS is strict on companies that do correctly classify an independent contractor. The best course of action is to be certain that the person you are hiring is as such is qualified.
- Using a tax professional (EA CPA) or filing the IRS Form SS-8 for an official declaration would cover your basics.
- The IRS, in collaboration with state and local employment services, can impose penalties and request late payments that were three years in the past. In certain cases, this can even be viewed as a criminal charge.
Request a completed W9 Form
Dependent contractors are required to complete an IRS W9 form for each employer who has paid them a minimum of $600.
An independent contractor form
To officially register the employment contract, both you and the freelancer must complete the independent contractor agreement form. Before signing the document, check each point to make sure it correctly reflects the terms negotiated. Main Sections
- Services. The exact services that the independent contractor has agreed to provide should be as detailed as possible. Make it clear that they have control over how the work is done and what that process involves.
- Compensation and expenses. The IRS can determine the status of an independent contractor. They can do this by judging how they handle the contractor’s business expenses and how they are paid.
- No competition, no advertising, no disclosure, and no product ownership. As independent employees, independent contractors have no fundamental employee restrictions. Therefore, you need to clearly define the limits of your possibilities.
- Litigation and terminations. To avoid complications, you can set the terms of any legal disputes in the document itself. This protects you and the contractor.
Submit the IRS Form 1099
You must submit the IRS Form 1099 to report taxes on payments to independent contractors. This is important for any of them you’ve paid at least $600 for services. You can easily do this with a Form 1099 MISC constructor.