Last Updated February 27, 2024
Alternate Names:
An Independent Contractor Agreement is also called a:
- Consulting Agreement
- Consultant Contract
- Freelance Contract
- Service Agreement
- Subcontractor Agreement
What is an Independent Contractor Agreement?
An Independent Contractor Agreement is a written contract between a professional service provider and a client that describes details such as:
- The services being provided
- The contractor's and client's contact information
- Billing details (such as hourly rates, retainer fees, late fees, and payment dates)
- Other terms (such as the contract period or claims to intellectual property)
Who can use an Independent Contractor Agreement?
You can use LawDepot's Independent Contractor Agreement if you are a contractor, subcontractor, or client who wants to document the terms of a service.
An independent contractor (sometimes known as a freelancer or consultant) is a business, corporation, or self-employed individual that provides services as required by a client in exchange for payment.
A subcontractor is an independent contractor hired by another independent contractor to help complete a project, often to perform a discrete or specialized task.
A client hires and pays for the services provided by the contractor.
What is the difference between an employee and an independent contractor?
An employee and an independent contractor are both paid for their service, but there are fundamental differences between the two. The following section highlights how employees and contractors are treated differently when it comes to taxes and superannuation, rights, responsibilities, payment terms, and the duration of employment:
Employee
- Taxes and superannuation: income tax is deducted from an employee's wage, and the employer also contributes to a superannuation fund for the employee
- Rights: entitled to pay obligations such as paid leave, minimum wage, and more
- Responsibilities: typically works a set number of hours and uses tools/equipment supplied by the employer
- Payment terms: paid a set wage at regular intervals (weekly, fortnightly, or monthly)
- Duration of employment: has indefinite employment status, whether full-time or part-time
Independent contractor
- Taxes and superannuation: typically pays their own taxes, GST, and superannuation, unless otherwise specified in an agreement
- Rights: not entitled to paid leave or minimum wage (unless established in an agreement), but is paid an hourly rate or flat fee
- Responsibilities: decides how many hours are required to complete the job and uses their own tools/equipment
- Payment terms: establishes payment amount, method, and dates with an agreement
- Duration of employment: hired for a set time period
There are many differentiating factors between an employee and an independent contractor, especially regarding workplace rights and entitlements. If you are establishing a work relationship with an employee, not a contractor, you can use LawDepot's Employment Contract instead.
What billing details can be included in an Independent Contractor Agreement?
A contractor may include specific details regarding payment terms in their written agreement, such as a flat fee, hourly rate, retainer fee, or late payment charge.
A flat fee is when a payment is made in full and at a certain time. Contractors may choose to charge a flat fee when:
- The project is a routine job that can be completed quickly
- They wish to avoid administrative duties (like logging hours)
- The client is on a strict budget
An hourly rate is when a payment is earned as the work is being completed and is paid periodically. Contractors may choose to charge an hourly rate when:
- The project is expected to be ongoing or long-term
- They wish to be transparent about the value of their work
- There's potential for the project scope to increase or decrease (additional projects may be added or removed)
A predetermined retainer fee is a payment made upfront, upon signing the contract, to guarantee the contractor's commitment to the project (often set within 10 to 50% of the total contract amount).
Late payment charges are additional charges that occur when payments are overdue, often set within 2 to 10% per month on the owed amount.