Independent Contractor Agreement

An employee works under the company's direction, uses company tools, and is entitled to benefits, payroll tax withholding, and labor protections. An independent contractor operates their own business, typically sets their own hours and methods, and is responsible for their own taxes and insurance. Courts and tax authorities look at how the relationship actually operates — not just what the agreement calls it — to determine the correct classification. Learn more about the difference here.

Misclassification can be costly. The company may owe back payroll taxes, penalties, and interest to the IRS, unpaid overtime and minimum wage to the worker, and — in some states — benefits and unemployment insurance contributions. California applies a particularly strict ABC test that presumes workers are employees unless specific criteria are met. A well-drafted ICA that reflects a genuinely independent relationship helps establish the right classification, but the underlying facts matter most.

Without a written agreement, work created by a contractor may belong to the contractor under U.S. copyright law, unless it qualifies as "work made for hire" under a narrow statutory list. To be safe, the ICA should include an explicit IP assignment clause under which the contractor assigns all work product to the company. This is one of the most important provisions in any contractor agreement and is frequently overlooked.

Both structures work. A project-based agreement defines a specific scope and deadline. A master services agreement (MSA) with individual statements of work is better for ongoing relationships where the scope of each project varies. Either way, a clear description of deliverables and timelines significantly reduces disputes about what was owed and whether it was delivered.

Generally, yes. Independent contractors often work with multiple clients, including in the same industry. However, the agreement can restrict conflicts of interest, misuse of confidential information, solicitation of the client’s customers or personnel, or work that interferes with the contractor’s obligations. Broad non-compete or exclusivity clauses should be used carefully, since enforceability depends on applicable law and overly restrictive terms may undermine the contractor’s independent status.