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SERVICE AGREEMENT (CONTRACTOR)

THIS SERVICE AGREEMENT (CONTRACTOR) (the "Agreement") is dated this ________ day of ________________, ________.

Client

____________________________________________________
(the "Client")

Contractor

____________________________________________________
(the "Contractor")
  1. BACKGROUND
  2. The Client is of the opinion that the Contractor has the necessary qualifications, experience and abilities to provide services to the Client.
  3. The Contractor is agreeable to providing such services to the Client on the terms and conditions set out in this Agreement.

IN CONSIDERATION OF the matters described above and of the mutual benefits and obligations set forth in this Agreement, the receipt and sufficiency of which consideration is hereby acknowledged, the Client and the Contractor (individually the "Party" and collectively the "Parties" to this Agreement) agree as follows:

  1. Services Provided
  2. The Client hereby agrees to engage the Contractor to provide the Client with the following services (the "Services"):
    • _______________________________________________________________
      _______________________________________________________________.

  3. The Services will also include any other tasks which the Parties may agree on. The Contractor hereby agrees to provide such Services to the Client.
  4. Term of Agreement
  5. The term of this Agreement (the "Term") will begin on the date of this Agreement and will remain in full force and effect until the completion of the Services, subject to earlier termination as provided in this Agreement. The Term may be extended with the written consent of the Parties.
  6. Performance
  7. The Parties agree to do everything necessary to ensure that the terms of this Agreement take effect.
  8. Currency
  9. Except as otherwise provided in this Agreement, all monetary amounts referred to in this Agreement are in USD (US Dollars).
  10. Compensation
  11. The Contractor will charge the Client a flat fee of $__________ for the Services (the "Compensation").
  12. The Client will be invoiced when the Services are complete.
  13. Invoices submitted by the Contractor to the Client are due within 30 days of receipt.
  14. In the event that this Agreement is terminated by the Client prior to completion of the Services but where the Services have been partially performed, the Contractor will be entitled to pro rata payment of the Compensation to the date of termination provided that there has been no breach of contract on the part of the Contractor.
  15. Reimbursement of Expenses
  16. The Contractor will be reimbursed from time to time for reasonable and necessary expenses incurred by the Contractor in connection with providing the Services.
  17. All expenses must be pre-approved by the Client.
  18. Confidentiality
  19. Confidential information (the "Confidential Information") refers to any data or information relating to the Client, whether business or personal, which would reasonably be considered to be private or proprietary to the Client and that is not generally known and where the release of that Confidential Information could reasonably be expected to cause harm to the Client.
  20. The Contractor agrees that they will not disclose, divulge, reveal, report or use, for any purpose, any Confidential Information which the Contractor has obtained, except as authorized by the Client or as required by law. The obligations of confidentiality will apply during the Term and will survive indefinitely upon termination of this Agreement.
  21. Ownership of Intellectual Property
  22. All intellectual property and related material, including any trade secrets, moral rights, goodwill, relevant registrations or applications for registration, and rights in any patent, copyright, trademark, trade dress, industrial design and trade name (the "Intellectual Property") that is developed or produced under this Agreement, is a "work made for hire" and will be the sole property of the Client. The use of the Intellectual Property by the Client will not be restricted in any manner.
  23. The Contractor may not use the Intellectual Property for any purpose other than that contracted for in this Agreement except with the written consent of the Client. The Contractor will be responsible for any and all damages resulting from the unauthorized use of the Intellectual Property.
  24. Return of Property
  25. Upon the expiration or termination of this Agreement, the Contractor will return to the Client any property, documentation, records, or Confidential Information which is the property of the Client.
  26. Capacity/Independent Contractor
  27. In providing the Services under this Agreement it is expressly agreed that the Contractor s acting as an independent contractor and not as an employee. The Contractor and the Client acknowledge that this Agreement does not create a partnership or joint venture between them, and is exclusively a contract for service. The Client is not required to pay, or make any contributions to, any social security, local, state or federal tax, unemployment compensation, workers' compensation, insurance premium, profit-sharing, pension or any other employee benefit for the Contractor during the Term. The Contractor is responsible for paying, and complying with reporting requirements for, all local, state and federal taxes related to payments made to the Contractor under this Agreement.
  28. Right of Substitution
  29. Except as otherwise provided in this Agreement, the Contractor may, at the Contractor's absolute discretion, engage a third party sub-contractor to perform some or all of the obligations of the Contractor under this Agreement and the Client will not hire or engage any third parties to assist with the provision of the Services.
  30. In the event that the Contractor hires a sub-contractor:
    • the Contractor will pay the sub-contractor for its services and the Compensation will remain payable by the Client to the Contractor.
    • for the purposes of the indemnification clause of this Agreement, the sub-contractor is an agent of the Contractor.
  31. Autonomy
  32. Except as otherwise provided in this Agreement, the Contractor will have full control over working time, methods, and decision making in relation to provision of the Services in accordance with the Agreement. The Contractor will work autonomously and not at the direction of the Client. However, the Contractor will be responsive to the reasonable needs and concerns of the Client.
  33. Equipment
  34. Except as otherwise provided in this Agreement, the Contractor will provide at the Contractor’s own expense, any and all tools, machinery, equipment, raw materials, supplies, workwear and any other items or parts necessary to deliver the Services in accordance with the Agreement.
  35. No Exclusivity
  36. The Parties acknowledge that this Agreement is non-exclusive and that either Party will be free, during and after the Term, to engage or contract with third parties for the provision of services similar to the Services.
  37. Notice
  38. All notices, requests, demands or other communications required or permitted by the terms of this Agreement will be given in writing and delivered to the Parties at the following addresses:
    1. ______________________
      ______________________________
    2. ______________________
      ______________________________

    or to such other address as either Party may from time to time notify the other, and will be deemed to be properly delivered (a) immediately upon being served personally, (b) two days after being deposited with the postal service if served by registered mail, or (c) the following day after being deposited with an overnight courier.

  39. Indemnification
  40. Except to the extent paid in settlement from any applicable insurance policies, and to the extent permitted by applicable law, each Party agrees to indemnify and hold harmless the other Party, and its respective affiliates, officers, agents, employees, and permitted successors and assigns against any and all claims, losses, damages, liabilities, penalties, punitive damages, expenses, reasonable legal fees and costs of any kind or amount whatsoever, which result from or arise out of any act or omission of the indemnifying party, its respective affiliates, officers, agents, employees, and permitted successors and assigns that occurs in connection with this Agreement. This indemnification will survive the termination of this Agreement.
  41. Modification of Agreement
  42. Any amendment or modification of this Agreement or additional obligation assumed by either Party in connection with this Agreement will only be binding if evidenced in writing signed by each Party or an authorized representative of each Party.
  43. Time of the Essence
  44. Time is of the essence in this Agreement. No extension or variation of this Agreement will operate as a waiver of this provision.
  45. Assignment
  46. The Contractor will not voluntarily, or by operation of law, assign or otherwise transfer its obligations under this Agreement without the prior written consent of the Client.
  47. Entire Agreement
  48. It is agreed that there is no representation, warranty, collateral agreement or condition affecting this Agreement except as expressly provided in this Agreement.
  49. Enurement
  50. This Agreement will enure to the benefit of and be binding on the Parties and their respective heirs, executors, administrators and permitted successors and assigns.
  51. Titles/Headings
  52. Headings are inserted for the convenience of the Parties only and are not to be considered when interpreting this Agreement.
  53. Gender
  54. Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa.
  55. Governing Law
  56. This Agreement will be governed by and construed in accordance with the laws of the State of Ohio.
  57. Severability
  58. In the event that any of the provisions of this Agreement are held to be invalid or unenforceable in whole or in part, all other provisions will nevertheless continue to be valid and enforceable with the invalid or unenforceable parts severed from the remainder of this Agreement.
  59. Waiver
  60. The waiver by either Party of a breach, default, delay or omission of any of the provisions of this Agreement by the other Party will not be construed as a waiver of any subsequent breach of the same or other provisions.

IN WITNESS WHEREOF the Parties have duly affixed their signatures under hand and seal on this ________ day of ________________, ________.

__________________________
Per:
____________________________
(Seal)
Officer's Name: __________________________
_______________________________
______________________ (Contractor)
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What is an Independent Contractor Agreement?

An Independent Contractor Agreement is a written contract that outlines the terms and conditions of the working arrangement between an independent contractor and client, including:

  • A description of the services provided
  • Terms and length of the project or service
  • Payment details (including deposits, retainers, and other billing details)
  • Confidentiality, non-solicitation, and dispute resolution clauses   

An Independent Contractor Agreement is also known as a:

  • Consulting Agreement
  • Consulting Services Agreement 
  • Freelance Contract
  • General Contractor Agreement
  • Subcontractor Agreement
  • 1099 Contractor Agreement

Need an Independent Contractor Agreement in Spanish?

Use our Contrato de Contratista Independiente.

What is an independent contractor?

An independent contractor is a self-employed individual or business entity which provides a product or service for a customer in exchange for monetary compensation based on a verbal or written contract with the client or customer.

A general rule for determining if an individual is an independent contractor is that a client only has control over a project's final product, but doesn't control how the work is done. By comparison, an employee's methods for completing a project are often guided by their employer.

Independent contractors are also known as consultants, freelancers, or 1099 contractors. (This last name is derived from the IRS Form 1099 which the customer fills out, sending one copy to the contractor and the other to the IRS.)   

Who can use an Independent Contractor Agreement?

Independent Contractor Agreements are beneficial for contractors, freelancers, and consultants who want a written agreement with their clients. Likewise, customers, clients, or businesses, who wish to outline the service arrangement in a written contract, will also find them very useful. 

All the involved parties can find value in a written agreement because the terms and conditions minimize the risk of any confusion or conflict down the road.

What is the difference between an independent contractor and an employee?

Differentiating between employees and independent contractors ensures a business can file taxes properly and comply with employment law.

There are many ways to distinguish a contractor from an employee. Here are some contrasting features to tell the difference between the two:

Independent Contractor

Some common characteristics of an independent contractor include:

  • Discusses a project’s scope and terms directly with the customer
  • Is not entitled to employment benefits from clients or customers
  • Has a personal investment in contracting business and may incur profit and loss as a result
  • May hire employees or subcontractors to help complete services
  • Invoices customers for work done
  • Signs an Independent Contractor Agreement
  • Subject to the Self-Employment Tax
  • Usually Works on a fixed-term or fixed project basis
  • Uses their own tools or equipment

Employee

Some common characteristics of an employee include:

  • Employer creates their job description 
  • Employer controls the employee's wages
  • Employer controls when, where, and how the employee carries out their work
  • Employers must pay a portion of payroll taxes on employees
  • Has signed an Employment Contract
  • May receive employment benefits, such as medical, pension, vacation, or sick pay
  • May undergo employment reviews
  • Receives in-house training   

These are general characteristics and shouldn’t be solely relied on to determine if a worker is an independent contractor or an employee.                       

What happens when employees are misclassified as independent contractors?

The U.S. Department of Labor (DOL) and the Internal Revenue Service (IRS) conducts regular audits to investigate situations where a company appears to have misclassified an employee as a contractor. The severity of the consequences for this action depends on whether it was intentional, unintentional, or fraudulent.

The ramifications for classifying employees as independent contractors can include:

  • A $50 fine for each unfiled W-2 form
  • Monetary penalties for failing to withhold income taxes (potentially 1.5% of paid wages, 40% of FICA taxes not taken from employee wages, and potentially interest for late filing)
  • A failure-to-pay tax penalty, which can total anywhere between 0.5% and 25% of the employer's taxes depending on how long the employer has misclassified the employee and failed to pay the appropriate taxes                       

How do I create an Independent Contractor Agreement?

You can easily create a customized Independent Contractor Agreement by filling out LawDepot's questionnaire. Using our template will ensure you complete the necessary steps:

1. State the location 

Specify the region your company operates in, and LawDepot will customize your Independent Contractor Agreement to meet your state's laws.

2. Describe the type of service required

Include an accurate description of the contractor's services in your agreement. Providing a detailed description gives the contractor and client a clear idea of the expectations.

For example, if a client hires a contractor to do landscaping on their property, the Independent Contractor Agreement might include that the contractor is responsible for:

  • Planting and maintaining flowers
  • Installing a pond and drainage system
  • Trimming trees and hedges

3. Provide the contractor’s and client’s details

Include the contractor’s and client’s contact details in your contractor agreement. The information can be a convenient reference if either party needs to contact the other.

Specify whether the parties are individuals or organizations, and include their names and addresses.

4. Outline compensation details

There are some details to consider when deciding how compensation will be exchanged, including:

  • Billing rates
  • Retainer or deposit
  • Frequency of payments
  • Late payment penalties

Billing details

An Independent Contractor Agreement needs to set the rate of pay. A contractor can charge an hourly, weekly, monthly, or annual rate. Alternatively, the contractor can charge a flat rate for the job. The rate that will be appropriate depends on the nature of the work and the length of the contract. 

If the parties agree to an alternative form of payment, select "other" in the questionnaire and describe the compensation (e.g., the customer pays the contractor $10,000 plus 500 shares of stock).

Also, state if the amount includes sale tax or whether the tax will be added later.

Retainer

State the retainer amount if you wish to include one.

A retainer, also called a deposit, is a sum of money that the contractor receives from the client before completing any work. It acts as security or collateral for the delivery of a service. A retainer is usually 10 to 50% of the total contract amount, depending on the customer's trustworthiness and financial stability.

Payment Schedule

Describe when the contractor receives payments from the customer.

A customer can pay a lump sum when the contractor finishes the job or create a payment schedule (e.g., every week, two weeks, or month).

Late payments

Set a deadline so the client knows how much time they have to pay the contractor after receiving an invoice. The typical time frame for payment is 15 to 30 days. The contractor can then apply an interest rate to any late payments.

Reasonable late fees go up to 25% per year on unpaid sums. Some states don't allow interest rates above a specific percentage. Check with your state government about interest rate caps.

5. State the agreement’s terms

An Independent Contractor Agreement must cover the terms and conditions of the contractor’s and client’s working relationship.

Terminating the contract

If the option to terminate the contract early is something that both parties agree to, state how much written notice is required to end the agreement.

One week's notice is usually sufficient for most short-term contracts. However, it's better to require at least 15 to 30 days’ notice if the agreement extends beyond a few months.

Reimbursing expenses

There might be situations that require the contractor to use their own money to keep a project progressing (e.g., gas money for traveling or hotel accommodations).

State whether the client will need to reimburse the contractor for work-related expenses. If they do, describe the guidelines for any additional costs. For example, the client will likely prefer the contractor seek pre-approval before doing any additional spending.

Intellectual property

Intellectual property is any work that is a "creation of the mind." For example, any original music, logos, blueprints, and software is intellectual property. Sometimes this will be applicable to a service contract.

Specify who owns the intellectual property created during the project.

Confidentiality

You might need some confidentiality guidelines if the contractor is privy to a client's personal or business information. If the agreement requires confidentiality clauses, specify how long the information must remain confidential.

6. Include any additional clauses

Clients and contractors have the option to include additional clauses in their agreement. Some people might address factors like: 

  • Indemnity
  • Return of property 
  • Liability
  • Legal expenses

Adding these terms is optional and depends on your situation.

7. State the signing details

State the date the parties will sign the Independent Contractor Agreement and whether any witnesses will be present. 

If you’re unsure when the parties will sign the document, you can provide the date later. A blank space will be available at the bottom of your agreement.

How do I protect the company's confidential information when working with a contractor?

Confidentiality is a concern for customers when hiring independent contractors to carry out a service. It's crucial to ensure any private information, intellectual property, or trade secrets exchanged during the project remains confidential.

Clients can include terms to prevent a contractor from divulging information about their business in a contractor agreement. A contractor will breach the contract if they don't comply with its terms. There are also terms about non-solicitation and non-competition in the event conflicts of interest or risk of competition arise.

According to U.S. copyright law, the copyright owner is the person commissioning the work (the client) that results in intellectual property. The person who creates the work (the independent contractor) in a "work for hire" situation isn't the copyright owner unless the Independent Contractor Agreement specifies otherwise.

You can tailor contractor agreements so that the contractor retains complete ownership of the intellectual property but gives the company license to use the material.

Are Non-Compete Agreements enforceable for Independent Contractor Agreements?

It’s unlikely that a Non-Compete Agreement will be enforceable as part of an Independent Contractor Agreement. 

Non-compete clauses are designed to prevent executive level employees or former partners from gaining an unfair competitive advantage against their former employer by using information gained through working in that business. However, it’s in the nature of independent contractors to seek work with different clients.

An enforceable Non-Compete Agreement needs to be reasonable in time, space, and scope. Putting any restrictions on an independent contractor's ability to find work will likely be deemed unreasonable.

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