What every contractor agreement should cover
An independent contractor agreement is a foundational business document that formalizes the relationship between a company and a non-employee worker. Getting this document right matters both legally and practically.
**Independent contractor status.** The most important thing a contractor agreement does is establish that the worker is an independent contractor, not an employee. This has major implications. An employee is entitled to benefits, payroll tax contributions, workers' compensation, and labor law protections. An independent contractor is not. The IRS uses a multi-factor test to determine worker classification; a written agreement alone does not settle the question, but it is an important piece of evidence. Key factors include whether the company controls how (not just what) the work is done, whether the worker can work for others simultaneously, and whether they use their own equipment.
**Scope of work.** Define the specific services the contractor will provide. The more specific, the better. Vague scope language is the number one cause of disputes in contractor relationships. List deliverables, timelines, quality standards, and what is explicitly excluded from the engagement.
**Compensation.** State the payment rate (hourly, per-project, or retainer), invoice frequency, payment due date, and accepted payment methods. Specify any reimbursable expenses and whether pre-approval is required. Late payment penalties are optional but encourage timely payment.
**Term and termination.** Define the project timeline or engagement period. Include a termination-for-convenience clause allowing either party to end the relationship with written notice. Specify how payment is handled for work completed before termination.
**Intellectual property.** Work-for-hire doctrine applies in some situations under copyright law, but it is safer to include an explicit IP assignment clause stating that all work product the contractor creates under this agreement becomes the company's property upon payment. If the contractor brings pre-existing tools or frameworks, carve those out.
**Confidentiality.** Contractors often access sensitive business information — source code, customer lists, marketing strategies, financial data. A confidentiality clause (or reference to a separate NDA) ensures this information stays private.
**Non-compete and non-solicitation.** Some companies include provisions preventing contractors from working with competitors during or after the engagement, and from poaching employees or clients. Enforceability of non-competes varies significantly by state — California and some other states will not enforce them. Keep the scope narrow and the duration short to maximize enforceability.
**No agency or employment.** The agreement should explicitly state that the contractor has no authority to bind the company, and that nothing in the agreement creates an employment or agency relationship.
**Common mistakes.** Not having a signed agreement before work begins. Using an agreement that looks like an employment contract (same pay schedule as employees, company-provided equipment, exclusive work arrangement) which can lead to worker misclassification claims. Forgetting to address IP ownership. Using overly broad non-compete language that may not be enforceable.
**When to involve a lawyer.** For high-value contractor engagements, relationships involving significant IP, agreements with non-compete clauses, or any arrangement where worker classification is unclear, have a licensed attorney review the contractor agreement before signing. FreeContract generates an editable starting template — not a substitute for legal advice on binding contractor relationships.