Independent Contractor Agreement - Advantages

Entering into an independent contractor agreement with a worker can be financially beneficial to your business.

An independent contractor or freelancer knows their livelihood depends on delivering quality work, unlike an employee who might rely on the "security" of a permanent position whilst not performing to his/her full potential.

Sidebar: If you are employing an independent contractor to perform services such as building, remodeling or painting etc. for your home, please refer to our general contractor page.

Important Note: You can use our free independent contractor agreement as a template to compile your document but do consider the guidelines to legally distinguish between a Contractor vs Employee before classifying a worker and review the "Work-for-Hire" guidelines. Visit our main Independent Contractor page for links to guidelines and forms.

Advantages of Hiring an Independent Contractor:

• The company can tailor their workforce according to the workload. During slow periods the company will not have the expense of employees being under utilized or idle.
• The cost of training employees to do certain tasks can be drastically reduced by hiring specialized contractors to do the work.
• There is no cost to the company for lost hours due to sick leave, compassionate or annual leave.
• A big consideration is the contribution of the company towards unemployment- and medical insurance of employees, which is not applicable to independent contractors. The employer must confirm though that the contractor has insurance in place.
• There is no minimum wage nor overtime payable as governed by law.
• Reducing a workforce is easy when employing independent contractors and paying retrenchment packages, outstanding leave etc. does not come into play.

The free independent contractor agreement supplied on our site outlines the scope or period of the work for an agreed upon amount. Should the contractor not perform or deliver to the satisfaction of the company, it is relatively easy to terminate the agreement.

Employers Beware:

An employer should not classify workers as independent contractors simply to take advantage as outlined above or to deprive employees of their rights.

If found guilty of misclassification, an employer may be liable for:

• Payment of taxes, even if such taxes have already been paid by the "independent contractor".
• Retroactive payment of employee benefits and applicable wages.
• Fines imposed by the government.
• Legal expenses of an employee who successfully sues the employer.

An employee who feels that he was coerced into signing an independent contractor agreement (whereas he should have had employee status and benefits) can report an employer to the relevant government agency and sue the employer for damages.

An independent contractor agreement is especially important to:

• State that the company owns the work - e.g. all photographs produced by a photographer, literary work, computer programming etc. - that were produced during the scope of an assignment for the company.
  
  Specific provision must be made for the assignment (not licensing) of copyright in any such work to the company.
• Show that the relationship between the company and contractor is not that of an employer/employee - provided of course that the classification fulfills the legal requirements.
• Clearly outline on what basis the contractor will be paid e.g. hourly / daily or whether it will be an agreed amount for a specific project.

Your contractor agreement should rather have clauses which may not come into play than omitting important ones.

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