Independent contractor agreement: the six clauses that matter

An independent contractor agreement is the contract between a business (the client) and a self-employed individual or firm (the contractor) performing work as a 1099 worker rather than an employee. It needs six things: the scope of work, the fees and expenses, the term and termination, the IP ownership position, the contractor-status clauses, and confidentiality. The status clauses are the ones free templates skip, and the ones that matter if the IRS or a state agency asks whether this person was really an employee.

The six clauses

1. Scope of work. Deliverables, milestones and acceptance criteria. Vague scope produces the two most common disputes at once — "that wasn't included" and "that isn't finished". Write what will be delivered, in what form, by when.

2. Fees and expenses. Fixed price, hourly rate, or per milestone. If hourly, add a not-to-exceed cap so the budget is bounded. State the invoicing cycle, payment terms, and which expenses are reimbursable and whether they need pre-approval.

3. Term and termination. Start date, end date or project completion, and how either side exits — notice period, payment for work performed to date, and what happens to work in progress.

4. Intellectual property. For anything creative or technical this is the clause that decides who owns the output. US copyright treats the author as the owner by default, and "work made for hire" only applies to specific statutory categories or to employees. A well-drafted clause therefore does both: designates the work as work made for hire where legally possible, and takes an assignment of all rights as a backstop. A template with only the first half can leave the client without ownership.

5. Independent-contractor status. State that the contractor controls the manner and means of the work, provides their own tools and workspace, may work for others, is responsible for their own taxes, and receives no employee benefits. These are not decorative: they mirror the factors agencies weigh.

6. Confidentiality, and non-solicitation if used. Confidentiality should survive termination. Non-solicitation must be narrow. California broadly voids restraints on trade under Business & Professions Code §16600, so a non-solicit clause is likely unenforceable there — and other states apply their own limits.

Misclassification is the real risk

Calling someone a contractor does not make them one. Federal and state tests look at behavioral control, financial control and the nature of the relationship; several states apply a stricter ABC test, under which a worker is presumed to be an employee unless the hiring party proves all three prongs — including that the work is outside the usual course of the hiring party's business.

The exposure is not theoretical: back employment taxes, unpaid overtime and benefits, penalties and interest. Two practical rules:

• Do not manage a contractor like an employee. Fixed hours you set, mandatory internal meetings, company equipment and a company email account all pull toward employee status.
• If the answer is really "employee", use an employment agreement. A well-drafted contractor agreement will not save a relationship whose facts point the other way.

Before you sign

Client: confirm the IP clause covers assignment as well as work-made-for-hire, check whether your state restricts the non-solicit you want, and collect a W-9 before the first payment.

Contractor: check the payment terms and cap, make sure you keep rights to pre-existing tools and libraries you bring to the project (a background-IP carve-out), and confirm the indemnity is not open-ended.

Draft it in a few minutes

Our template covers scope, fees (fixed, hourly or milestone) with an optional not-to-exceed cap, expenses, term, contractor-status clauses, IP as work-made-for-hire plus assignment, confidentiality, optional non-solicitation, indemnity and dispute resolution — and flags a California non-solicit as likely unenforceable under §16600.

→ Independent Contractor Agreement

Hiring an employee instead? Employment Agreement. Related: NDA vs non-compete.