Q4 is often one of the busiest times of year for online business owners. Between wrapping up client projects, doing end-of-year launches, and of course, prepping for the holidays, most entrepreneurs find themselves needing extra help this time of year, often in the form of independent contractors.
As an online business owner myself, I can truthfully say that hiring independent contractors is one of the best ways to scale your business sustainably and allow yourself to live in your zone of genius.
But it’s also one of the easiest areas to get legally tangled if you don’t have the right agreements in place. Whether you’re bringing on a virtual assistant, a designer, a copywriter, a social media manager, or another type of independent contract, you need to make sure your business is fully protected before bringing them on.
So, before you send that first payment or assign a task, here’s what to know about legally hiring an independent contractor, especially heading into Q4!
What is an Independent Contractor?
Before we get into the legal must-haves, let’s get on the same page about what an independent contractor even is – and what they’re not. It’s important to know that an independent contractor is NOT the same thing as an employee.
There’s a few legal differences between an employee and independent contractor and we’ll dive into those in just a moment!
So what exactly is an independent contractor?
Simply put, an independent contractor is a self-employed professional who provides services to another business under a contract, but again is not considered an employee.
Essentially, they run their own business and are hired to complete specific projects or deliverables.
As the hiring party, you don’t withhold taxes for them, you don’t control their day-to-day work schedule, and they typically use their own tools, systems, and methods to get the job done.
Common examples of independent contractors include:
- Virtual assistants
- Brand or web designers
- Copywriters
- Marketing specialists
- Bookkeepers
- Photographers
When structured correctly, this arrangement is a win-win: they maintain independence and flexibility and you gain expert support without the long-term commitment or costs of an employee.
But if you’re not careful about how you classify and contract them, you could end up crossing legal lines and that’s where things can get messy!
The Legal Differences Between Hiring an Employee vs Independent Contractor
To avoid any weird legal mess, let’s go over the technical difference of an employee and independent contractor, shall we?
Here’s the thing: just because you call someone a contractor doesn’t mean the law sees them that way. The IRS and various state laws look at several factors to determine whether someone is truly an independent contractor or actually an employee in disguise!
Here’s a quick breakdown of the key differences ⬇️
Employee:
- Works under your direction and schedule
- Uses your tools and follows your processes
- You withhold and pay employment taxes
- May receive benefits and ongoing training
- Considered part of your team long-term
Independent Contractor:
- Sets their own schedule and work methods
- Uses their own equipment and tools
- Handles their own taxes and insurance
- No benefits or ongoing employment relationship
- Works per project or for a set duration
Misclassifying a contractor as an employee (or vice versa) can lead to tax penalties, back pay issues, and even legal action, which is why if you’re really hiring an independent contractor, having a clear, written Independent Contractor Agreement is essential so it outlines the relationship and proves you’ve set things up correctly!
But what exactly should that agreement include?
What Should an Independent Contractor Agreement Include?
For an Independent Contractor Agreement to be most effective and actually protect you, your business, and the contractor, it should include a few key clauses that define what both sides can expect, what each is responsible for, and how you’ll handle things if something goes wrong.
Scope of Work
This is where you clearly outline EXACTLY what the contractor is being hired to do – and I really do mean exactly. In the scope of work clause, you should be as specific as possible by listing the deliverables, deadlines, and any key milestones.
For example, if you’re hiring a social media manager, their scope of work might look like: “Contractor will provide social media management services for Instagram, including 12 static posts and 4 Reels per month and they will be delivered on X date.”
In this section, remember the 3 W’s:
- Who is responsible for each part of the project (you or the contractor)?
- What exactly is being delivered (and in what format)?
-
When are those deliverables due (and what happens if deadlines shift)?
Getting crystal clear on those three things helps prevent confusion, protects both sides, and keeps your project moving smoothly.
Payment Terms
Following the scope of work, specify how much the contractor will be paid, when payments are due, and whether there are any late fees or deposits. It’s also important to clarify whether the payment is based on hourly work, per-project, or a retainer.
Independent Contractor Status
Remember how I said earlier that misclassifying a contractor as an employee (or vice versa) can lead to tax penalties, back pay issues, and even legal action?
Well this clause is where you confirm their contractor status by stating that they are NOT an employee, thus they are responsible for their own taxes, benefits, and insurance.
Intellectual Property Ownership
One of the biggest things that you have to consider when hiring an independent contractor to do specific work with you – especially creative work – is who owns the work once it’s completed.
Most business owners assume that because they paid for the work, they automatically own it, but that’s actually not always the case. Legally, independent contractors retain ownership of their work unless your contract explicitly says otherwise!
In most cases, the agreement will say that ownership transfers to the hiring business after final payment is made. However, it’s also common (and totally reasonable) for contractors – especially creatives like designers, writers, or photographers – to keep a limited right to feature the work in their portfolio or marketing materials.
The key is to make it crystal clear what’s allowed so no one’s surprised later!
Confidentiality and Non-Disclosure
If your contractor will have access to sensitive information (like client data, passwords, or business strategies), you need a clause requiring them to keep it confidential both during and after the project.
Termination Clause
One of my biggest pieces of advice for business owners is to always leave yourself an out – both with contractors and with clients. Because the last thing you want is to feel stuck working with someone who really isn’t a good fit for your business.
When it comes to independent contractors, this clause should explain how either party can end the agreement and whether payment will be owed for work completed up to that point.
Refund and Cancellation Policy
If a deposit was paid or if the contractor’s services are prepaid, your contract should clearly outline whether refunds are available and under what circumstances.
Dispute Resolution
Listen, no one likes to think about disagreements, but it’s important to recognize that we’re all human and when money is involved, disagreements can easily happen. But that doesn’t mean you have to be unprepared for them.
When hiring an independent contractor, it’s smart to include a clause that outlines how disputes will be handled, such as mediation or arbitration, before things escalate to court.
Having these clauses in writing not only protects you legally but also prevents misunderstandings that can damage your business relationships.
FAQs about Hiring Independent Contractors as a Business Owner
Who should provide the contract – the hiring business owner or the independent contractor that’s being hired?
This is a question that comes up a lot because since the business owner hiring the contractor and the contractor are both business owners, they typically both have contracts to protect their business.
And technically, either party can provide the contract. However, the best practice is for whoever is hiring (and paying) to provide the contract, since they’re the one outlining expectations, deliverables, and payment terms.
That said, many independent contractors come prepared with their own agreements and that’s actually a sign they’re taking their business seriously (which should be a green flag for you!).
The best rule of thumb is if the contractor provides the agreement, be sure to read it carefully and ensure it fully protects YOU too. If you see that it’s primarily concerned with protecting the contractor, you can always request edits or ask to include clauses that protect your business, too!
Can BOTH parties provide a contract in order to protect their business?
Sooo, is there ever a world where both parties provide a contract to ensure their business is fully protected? Actually yes and it happens more often than you think!
Sometimes, both sides will have standard contracts that reflect how they typically work. In those cases, you can merge the terms into a single document or sign both, depending on what makes sense.
The key here, however, is not to double up on conflicting terms (for example, two different refund or payment clauses). Instead, have one clear, mutually agreed-upon document that combines the non-negotiables for both parties!
Is it legal for an independent contractor to require a certain monthly commitment when hiring them?
Hiring an independent contractor can feel a little nerve wrecking, especially if you’ve never hired one before. And even if you vet potential contractors well and feel confident about who you’re hiring, it’s still normal to have a few reservations when entering the working relationship.
After all, this is your business we’re talking about and you’ve worked hard to create what you have and you want to make sure it’s in good hands!
So when you see the disclaimer that the contractor requires a certain time commitment when hiring them, you might feel a little iffy about it… is that even legal? What if it doesn’t work out – are you stuck with them through that commitment?
All good concerns, so let’s clear this up!
First, YES it’s absolutely legal for contractors to require a certain time commitment when you hire them. Independent contractors are running their own businesses, which means they can structure their pricing and project terms however they want.
If that includes a three-month minimum or a retainer-style agreement, that’s perfectly legal as long as it’s clearly stated in the contract.
As the hiring business owner, it’s your job to review those terms and decide if the arrangement works for you before signing. Once you agree to those terms, they become legally binding!
But what if you want out before that time commitment is up? That’s where the termination clause that was mentioned earlier comes into play. This clause should state whether or not you can end the contract early and if so, what payments you’re responsible for if you choose to do so.
Independent Contractor Agreement Template for Business Owners
So, if you’re hiring help for Q4, whether it’s for client work, a holiday launch, or backend operations, don’t skip the contract step!
And if it feels overwhelming for you to create one on your own, an Independent Contractor Agreement Template takes the guesswork out of what to include.
It’s already written with the clauses you need to:
✔️ Define the relationship clearly
✔️ Set payment expectations
✔️ Protect your intellectual property
✔️ Maintain confidentiality
✔️ Keep your business legally compliant
With this template, you can plug in the specific details for each contractor you hire and have peace of mind knowing your bases are covered!
P.S. If you’re an independent contractor looking for a client agreement to protect YOUR business, this one’s for you!
ABOUT THE AUTHOR, AMBER GILORMO – ATTORNEY AND FOUNDER OF THE BOUTIQUE LAWYER
Amber Gilormo is the cool lawyer behind The Boutique Lawyer – a one-stop contract template shop for creative entrepreneurs, online business owners, coaches, and service providers.
From client agreements to digital product terms and everything in between, our lawyer-drafted templates take the guesswork out of staying legally protected online (no legal jargon required).
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