An independent contractor agreement is the contract between a business and a freelancer or contractor. It fixes the scope of work, the pay structure, who owns the work product, and, critically, it documents that the worker is a contractor rather than an employee.
That last point matters more than most people think: misclassifying an employee as a contractor triggers back taxes, penalties, and benefits claims. A written agreement with the right clauses is the first line of defense.
Contractor or employee: why the distinction matters
The IRS and state agencies look at behavioral control, financial control, and the nature of the relationship. A contractor decides how the work gets done, uses their own tools, can serve other clients, and gets paid per project or per invoiced hour without tax withholding. This template includes the status clauses that support that classification, but remember that the label alone does not decide the question: the actual working relationship must match the contract.
State tests can be stricter
California's ABC test and similar laws in other states presume workers are employees unless strict conditions are met. If the contractor works only for you, on your schedule, doing your core business, get advice before relying on contractor status.
Hourly, fixed price, or milestones
- Hourly: flexible for evolving scopes; add a monthly hours cap to protect the budget.
- Fixed price: best when the deliverable is precisely defined; the contractor carries the efficiency risk.
- Milestones: the standard for larger projects; each payment is tied to an accepted deliverable, which keeps both sides motivated.
Who owns the work product?
Without a written assignment, a contractor generally keeps the copyright in what they create, even if you paid for it. This template assigns all work product to the client upon full payment, while letting the contractor keep their pre-existing tools and templates with a license to the client for anything incorporated in the deliverables. That combination is the market standard and is fair to both sides.
Frequently asked questions
Do I need to send the contractor a 1099?
Generally yes: businesses report payments of $600 or more per year to a contractor on Form 1099-NEC. Collect a completed W-9 from the contractor before the first payment so you have their taxpayer information on file.
Can the agreement include a non-compete?
Be careful. Non-competes for independent contractors are unenforceable or heavily restricted in many states, and a broad one can even undermine contractor status. A confidentiality clause and a narrow non-solicitation clause usually achieve the legitimate goal.
Who pays the contractor's taxes?
The contractor. Clients do not withhold income tax or pay employer payroll taxes for contractors. The contractor pays income tax and self-employment tax on their earnings, which this agreement states explicitly.
What if the scope of work changes mid-project?
Put every change in writing: a short signed change order describing the new work and the price adjustment is enough. Scope creep without a paper trail is the most common source of freelancer disputes.
Can either side end the contract early?
Yes. This template allows either party to terminate with 14 days' written notice, with the client paying for all work properly performed up to the termination date. You can adjust the notice period in the Word file before signing.