An Agreement of Purchases (AOP) is a legally enforceable contract that establishes confidentiality between two parties—the owner of protected information and the recipient of that information
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Making an Independent Contractor Agreement
Independent Contractor Agreements are simple to make and are a way of clearly outlining the scope of the work, payment schedules and deadline expectations of a freelance arrangement. Our templates also include a confidentiality agreement, insurance expectations and an indemnification clause.
Choosing between hiring employees or independent contractors is an important decision that defines not just working relationships, but taxation as well. How workers are classified is determined by the amount of control an employer exercises over their work. In an employer-employee relationship, the employer typically controls all of the following factors:
- Where the work is done, either at the workplace itself or another location.
- The hours during which the work is done.
- How the work is done.
- Mandatory attendance at meetings and other functions.
- Use of equipment owned by the employer and provided to the employee for work purposes.
Independent contractors are not typically subject to the same level of control by the hiring client. They usually set their own hours, have their own process for completing projects, and own their own equipment. Independent contractors don’t receive company benefits, such as paid holidays and vacations, paid sick days, and health insurance. The expense of having to pay for these benefits out of pocket are often factored into the contractor’s rates
You should also be aware of tax treatment differences between employees and independent contractors.
- You must withhold state and federal income tax.
- You must withhold Social Security tax.
- You must withhold Medicare tax.
- You must pay Unemployment tax on wages.
- You must complete a W-2 form for each employee.
For independent contractors:
- Employers do not have to worry about the above tax issues for employees. Independent contractors handle taxes related to social security, medicare etc.
- Employers have to produce a W-9 to be completed by the independent contractor.
- You may have to file information returns (form 1099-MISC) to report certain types of payments made to independent contractors. Generally, any payment in excess of $600 will require a 1099-MISC form.
If you misclassify employees as independent contractors on your tax return, you’ll be responsible for paying employment taxes for that worker, so double check all Employment Agreements and Independent Contractor Agreements to be sure your working relationship is clearly defined. Classification can be tricky and very specific to how a business operates. You may want to consult with a Rocket Lawyer On Call® attorney for legal advice specific to your business practices and worker classification.
- You are an independent or freelance contractor and need to provide a contract for your client.
- You are working with an independent contractor and need your agreements outlined in a contract.
While Independent Contractor Contracts include numerous clauses and agreements, they are quite easy to make using Rocket Lawyer’s document interview. It only takes a few minutes to create a legal, working contract.
A business owner needs an Independent Contractor Agreement for several reasons.
Setting Expectations: An Independent Contractor Agreement explicitly sets out the expectations and parameters of the work to be done, the compensation, and the nature of the relationship itself. It is a clear-cut explanation of the expected workflow, how communication will be handled, and how the relationship will work.
Work Product Ownership: An Independent Contractor Agreement protects your business interests by:
- Establishing ownership of any work product generated as a result of the arrangement.
- Requiring contractors to actively protect trade secrets.
- Providing for confidentiality and non-disclosure of key business information.
Affirming the Independent Contractor-Client Relationship: Employers are required to do certain things for employees that they are not required to do for independent contractors, so it’s important to affirm the relationship in writing. For example, independent contractors are responsible for paying all of their own income taxes, while employers are required to deduct part of the employees’ taxes from their paychecks. Employers usually provide some benefits to employees, such as health insurance and paid time off. These benefits are not offered to independent contractors.
Having a contract alone may not necessarily protect you from a contractor later claiming they were an employee, but it may be a good thing to do nonetheless because it indicates the intention to have an independent contractor-client arrangement at the outset of the relationship. You might seek further protection by having an attorney review your Independent Contractor Agreement or seeking answers to questions you might have.
Independent Contractor Contract, Freelancer Contractor Agreement, Contract Labor Form
The first distinction that needs to be made about these contracts is that they are not for employees. There are to create an agreement between you (or your company) and an independent or freelance worker. Some examples include you paying a handyman to install new windows in your home, or you are commissioning a freelance web designer to create your company’s website, or you are contracting with a painter to paint your new offices. They are independent workers and since they are not employees, the freelancer is responsible for most of their own tax obligations. Additionally, since they are not employees you cannot restrict them from taking on other clients, tell them exactly how to do their job, or dictate their day-to-day schedule.
The first is that they help protect your business interests. The contract outlines exactly what work needs to be completed, when it needs to be finished by and how much you are going to pay. The second is that it shields you from liability issues and helps protect your assets and proprietary information. If you are taken to court, you have the signed agreement to clearly show the judge what your expectations were. You may also need a copy of the contract if you are audited by the IRS.
If you are a freelancer, it can help you get paid should you end up in a payment disagreement. You’ll look professional if you provide a contract for your clients if they do not have one. It also shows that you are willing to commit to work and time agreements.
There are many advantages to hiring a contract worker over a regular employee, including:
- You don’t have to pay their FICA tax obligations
- You don’t have to offer health insurance or other benefits
- You only have to pay them for agreed upon work
- It is often easier to end a contract than firing an employee
- Less paperwork overall
- You don’t have to micromanage their work or schedule
An Independent Contractor Agreement should contain all of these basic terms:
- Description of the services to be provided.
- How payment will be handled, whether hourly or on a per-project basis.
- Term of the agreement, typically with a definitive end date.
- Explanation of what the hiring party will provide or not provide, such as equipment, for the independent contractor to use.
- Ownership of work product if that is relevant to the work being performed.
- Confidentiality clause.
- Applicable governing law of the agreement.
These terms, as well as several others, are included in Rocket Lawyer’s free Independent Contractor Agreement.
There are various options available for signing an Independent Contractor Agreement remotely, but the most efficient way is to use a third-party application, such as RocketSign, to sign the document electronically. Signing documents electronically has become a necessity due to the business challenges that have arisen as a result of the COVID-19 pandemic. Getting ink signatures on a contract can be a hassle. RocketSign eliminates the back-and-forth by providing an end-to-end solution for your document signing needs.
Having an Independent Contractor Agreement with each of your freelancers will help establish the work to be done, protect your interests in the assets that are created by the independent contractor for your business, and add clarity to the independent contractor-client relationship that is the intent of both you and your new freelancer.
If the person you are contracting to do work for you is a self-employed person you will need to have them complete a Form W-9 and you’ll need to fill out a 1099-MISC, both forms can easily be downloaded from the IRS website. The W-9 is to gather their contact information and tax identification number. The 1099-MISC is how they report income on their individual income tax return. You are required to do this if you pay them more than $600 within a year. To satisfy your IRS obligation, you’ll have to send the completed 1099 Form to the IRS and the contract worker before January 31st of the following year.
For added IRS protection, you’ll want to keep for your record documents that can prove the person was a contract worker and not an employee. The burden of proof is on you to prove this, the IRS usually will assume the person was an employee unless you can prove otherwise. If you get audited you’ll want on hand the freelance contract, a list of the contractor’s qualifications, and all invoices and proof of payments. If you are unsure whether the contractor you are working with would qualify as an employee or independent contractor to the IRS, you can make a request for determination by filing a Form SS-8.
It is easier than ever to find freelance workers for nearly any type of project. There are numerous online resources for finding contract workers for technical gigs such as app building, website creation and content writing. You can also find online connections to people to do onsite jobs such as lawn care, home repair or dog walking. An advantage to using an online or staffing service is that they often take care of most of the paperwork for you.
If you are using an online site for finding a freelance worker, you can read reviews from people who have hired them before. Plus, it is advised that you ask to see their portfolio and review their online presence. Many test a freelancer’s skills with a small paid project before contracting with them for a large project. If you can, meet them in-person and discuss your project. If you cannot meet them in-person, set up a phone or video call for a quick interview. If they do not have the information required to fill out a W-9, you may want to hold off working with them until they can obtain a valid Taxpayer Identification Number.
If you choose to work with an independent contractor and they do well, it is helpful if you return the favor by leaving them good reviews on their online profiles or professional social media pages. You could also refer them to your colleagues if they need similar work done. It is helpful to network with good freelancers since they may have connections to other talent you may need to help you with future projects. And positive reviews about their project experience with you can help foster beneficial future business relationships.
If you are running your own company, we offer numerous Essential Documents for Running a Business that can help you do things like make a Joint Venture Agreement, Business Proposal or Confidentiality Agreement. If you are an independent contractor or consultant, we provide useful documents such as Bid Forms, Consulting Agreements, Contract Extension Agreements, and more.