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What is an Independent Contractor Agreement?
An Independent Contractor Agreement is a contract between a contractor and client that outlines the terms and conditions of their working arrangement. An independent contractor is a self-employed individual or business entity that provides a product or service for a client in exchange for payment.
An Independent Contractor Agreement is suitable for use whether a client hires a contractor for a single job, a fixed term, or on an ongoing or indefinite basis. The terms usually include details regarding timelines, a payment schedule, and the scope of the work or project.
An Independent Contractor Agreement is also known as a:
Who should create an Independent Contractor Agreement?
Both contractors and clients can create Independent Contractor Agreements. The parties may draft an agreement together, or one party may create one independently.
Since contractors and freelancers usually determine their rates or fees, it is typical for them to be the ones to create agreements for their clients to sign. Contractors and self-employed freelancers may include:
- Construction professionals
- Carpenters
- Recruiters
- Plumbers
- Auto mechanics
- Electricians
- Repairpeople
- Instructors
- Web developers
- Graphic designers
If a contractor does not present a client with an agreement, the client can take the initiative to create one for both of them to sign.
Why should I use an Independent Contractor Agreement?
Whether you are a contractor or a client, there are many reasons why you should use an Independent Contractor Agreement, including the following:
- It provides legal protections for the independent contractor and the client
- It sets clear expectations for the service and the end product
- It can reduce miscommunications and minimise the risk of conflict
- It creates a record of billing terms, including the payment amount and date
- It can eliminate confusion over deadlines and time expectations
- It outlines who will own any intellectual property created under the arrangement
- It can ensure that a client’s confidential information remains private
The easiest way to create a written contract is by using an Independent Contractor Agreement template. Our template is customised for Singapore and offers a range of clauses to cover a wide variety of business relationships.
What is the difference between an independent contractor and an employee?
Understanding the factors that determine whether someone is an employee or an independent contractor helps prevent the misclassification of employees. Companies must avoid misclassifying their staff as contractors to comply with the law and file their taxes correctly.
An independent contractor:
- Is not covered by The Employment Act
- Has no entitlement to employee benefits
- May hire their own employees or subcontractors to help complete services
- Sends invoices to clients
- Reports their income as business income and not as salary when filing income tax
- Usually works on a fixed-term or fixed project basis
- Uses their own tools or equipment
- Has control over how they want to complete a project
An employee:
- Signs an Employment Contract
- Is covered and protected by The Employment Act
- Receives in-house training
- May receive employment benefits, such as vacation time or medical benefits
- May undergo employment reviews
- Has their job description and wage controlled by their employer
- Does not necessarily have control over how they complete their work
How do I create an Independent Contractor Agreement?
To create an Independent Contractor Agreement, the contractor and the client need to:
- Set the duration of the contract
- Describe the services that the contractor will provide
- Outline how much the client will pay the contractor
- Specify whether the client will cover expenses or provide resources
- Specify whether either party can penalise the other for things, such as late payments or unfinished work
- Specify which party will retain ownership rights upon completion of the contract, if any intellectual property is involved,
If you hire a contractor for a project in which they will have access to private information, such as intellectual property or customer data, you may be concerned about confidentiality. Intangible assets, such as trade secrets, are valuable to you or your business, so you must take steps to protect them.
When working with a contractor, include a confidentiality clause in your Independent Contractor Agreement to protect your information. This clause prohibits the contractor from sharing any of your confidential information. In this instance, confidential information means any private or proprietary data or information relating to you, whether business or personal, that is not generally known. Generally, it is expected that the release of confidential information could cause harm to you, the client.
Suppose you have already created an Independent Contractor Agreement that does not contain a confidentiality clause, and now you would like to take steps to protect private information. In this case, you do not have to create a new contractor agreement. Instead, you can have the contractor sign a Non-Disclosure Agreement or Confidentiality Agreement.