Last Updated March 15, 2024
Independent Contractor Agreement
What is an independent contractor?
An independent contractor is someone who works independently by providing services to clients and customers without being considered an employee. The contractor provides their services to the client under an Independent Contractor Agreement. They may be part of a group of contractors working under one contract, or they may be a self-employed contractor.
You can use an Independent Contractor Agreement to hire any kind of contractor, including:
- Contract builders
- Painters
- Freelance creatives
Do independent contractors need a contract?
While a contractor can work for a client without a written contract, formalising the agreement in writing benefits both parties. An independent contract form allows for both parties to establish and agree upon the details of the arrangement.
For example, you can hire a contractor without completing any paperwork. However, if you only have a conversation about their rates, you won’t have a record of your agreement if they charge you differently than you were expecting. By creating an independent contractor agreement, you can get important details in writing on a signed document.
Creating an Independent Contractor Agreement protects both parties. By outlining the details of the arrangement, such as pay and deadlines, both parties can enter into the working arrangement with confidence.
Can a contractor be an employee?
When someone works for a company, they can either be a contractor or an employee, but not both. Because a contractor and an employee are legally different, it’s important to understand them as two separate roles.
What is the difference between an independent contractor and an employee?
While the kinds of work independent contractors and employees can do is very similar, it’s important to distinguish one from the other because of the legal differences between the two.
An independent contractor usually:
- Has more than one customer or client
- Is self-employed
- Determines their own rates and sends invoices to customers for payment
- Uses their own tools or equipment
- Works without supervision
- Signs an Independent Contractor Agreement
- Works on a fixed-term basis
- Doesn’t receive employment benefits or paid annual leave
- Files an individual income tax return and pays ACC levies
- Can claim back expenses against tax liability
- Needs to register for GST if income is above $60,000
- Isn’t covered by employment-related laws, meaning they aren’t entitled to sick leave
Independent contractors can hire employees or subcontractors to help complete the services they offer.
Conversely, an employee usually:
- Reports to a supervisor or manager who controls how, where, and when they complete their work
- Has a wage or salary established by the employer
- Has the potential to receive employment benefits, like medical, holiday pay, sick pay, or a pension
- Signs an Employment Contract
- Undergoes employment reviews
- Receives in-house training
- Has PAYE deducted from their salary by their employer
In New Zealand, employees have established rights under employment laws that employers must uphold. These rights include:
- Minimum wage
- Holidays and leave entitlements
With both independent contractors and employees, companies must adhere to health and safety laws.
How do you fill out an Independent Contractor Agreement?
Before signing an Independent Contractor Agreement, both the client and the contractor should discuss the following:
- The services that the contractor provides and the compensation they require
- If the client or customer will cover expenses or provide resources
- The duration of the contract
- If one party can penalize the other for things such as late payments or unfinished work
- Who retains ownership rights over any intellectual property
You can create a contract for a single job, a fixed duration of time, or indefinitely if the job is ongoing.
Provide details regarding the independent contractor’s services. Be clear and specific when describing tasks, and indicate any important dates. Make sure to provide both the contractor’s and the client’s name and address.
The contractor also has the option of charging the client a retainer fee to secure services The retainer amount depends on the trustworthiness and financial stability of the client, but a reasonable amount is usually 10-50% of the total contract.
Other terms to consider include:
- If one party can end the contract early and, if so, how many days’ notice they must give
- A confidentiality clause, prohibiting the contractor from revealing the client’s sensitive information
- Any additional clauses necessary
LawDepot’s Independent Contractor Agreement template is customised for New Zealand. Use our questionnaire to personalise your document to suit your needs.