Independent Contractor Agreements: Client Guide + Free Template

Independent contractors have become a strategic asset. You can rely on them to scale your workforce quickly, access niche skills, and keep overhead low.

However, there’s a common misconception that independent contractors don’t involve much formal paperwork. Many companies believe they can make a quick agreement over email and start sending their new hire the work.

In practice, hiring independent contractors is complex. Most countries have strict employment laws concerning how you hire and manage workers, whether they’re employees or not. If your business violates one of these laws — whether intentionally or not — you can incur significant penalties and legal action.

That’s why it’s crucial to create an independent contractor agreement. While these documents add extra steps to hiring, they make it simpler to maintain compliance and prove you’ve met all your legal obligations.

Let’s look in more detail at why these contracts matter, what to include in them, and what tools and services you can use to generate them.

What is an independent contractor agreement?

An independent contractor agreement is a legal document outlining the business relationship between a hiring company and a freelancer. It outlines the work the contractor will do, how and when they will deliver it, and how you will compensate them.

These agreements help establish clear expectations, avoid disputes, and protect both parties from legal and financial risks.

Unlike an employment contract, an independent contractor agreement focuses on specific services. Say, for example, you hire a freelance graphic designer to create a website for your company. Your agreement would include details like the number of webpages, the due dates, and the creative guidelines for the project.

What are the benefits of independent contractor agreements?

Contractor agreements are important because they minimize legal and financial risks for your business. Here’s a list of the main reasons why:

• Clear expectations: Agreements ensure both you and the freelancer understand your rights and responsibilities, reducing the chance of disputes later
• Cross-border compliance: Foreign contractors may not be familiar with your country’s labor laws and work practices so an agreement helps you educate them
• Professional working relationships: Many freelancers expect clients to have a written agreement and may have a poor view of businesses that operate without one
• Lower risk of misclassification: The agreement clarifies that the work relationship isn’t a joint venture or full-time employment and reflects this in the terms and conditions
• Defined ownership of IP: Terms and conditions can make it clear who owns the work produced by the contractor
• Safe exit strategies: Termination clauses establish the smooth way to end the contract, ensuring you part on amicable terms and minimizing the disruption to your processes

Remember: While an effective independent contractor agreement is an important layer of protection, it only carries weight if the business relationship reflects the details outlined in the agreement. You’re still at risk for misclassification if a single member of your team treats a contractor like an employee.

Are independent contractor agreements mandatory?

Agreements aren’t mandatory in every jurisdiction. However, it’s still best practice to draft a fresh document whenever you hire a freelancer for a new project or service to minimize the legal risks to your business.

Defining the work relationship between you and contractors makes it easier to check that you meet all your legal obligations. In particular, it helps you verify you haven’t misclassified an employee as an independent contractor, which can lead to significant penalties, legal action, and reputational harm. Just to give you a sense of the enormity of the potential issue, the sportswear retailer Nike might have to pay over $530 million (USD) for treating employees as contractors.

After the hiring process, the agreement can help your team understand how to manage freelancers. This ensures your work relationship continues to meet the relevant classification criteria and comply with employment laws. For example, US teams can refer to your agreement to see that they can’t dictate working hours or methods used in accordance with IRS rules.

If you’re new to worker classification, our guide on independent contractors vs. employees provides more details.

What should an independent contractor agreement include?

The exact details of your independent contractor agreement depend on your location, business needs, and the nature of the project. Generally speaking, however, the entire agreement should cover the following:

General information about the contractor and client

As standard, the first section should identify the client company and the contractor or entity providing the service. Add the legal names and official details for both parties, such as the country, registered address, and Tax ID.

If you use Deel Contractor to generate the agreement, the platform will prompt the freelancer to provide all the required details.

The effective date of the agreement

The effective date indicates the beginning of the agreement and the work in question. It clarifies when the business relationship begins and when the contract provisions become active.

Governing law

This section clarifies which country or state laws govern the contract. Clarifying the applicable laws makes it easier to interpret the terms of your agreement should a legal dispute arise, especially if you and the contractor are based in different locations with different regulations.

Your company’s location is the default for governing laws. However, local courts may override that choice if the contractor’s home country has strong worker protection laws.

Services and scope of work

The next section outlines the exact work the contractor will deliver. List each service or project you’ve agreed upon, and be as specific as possible to reduce the risk of misunderstandings.

If you plan to work with the same contractor on multiple assignments, define the general scope in your primary agreement. You can create a separate statement of work (SOW) for each additional project. Ensure your primary agreement mentions that all future SOWs will fall under the terms of the original contract.

Clarify that the contractor is free to decide how they complete the work, provided it meets the agreed-upon deadlines and quality standards. This reinforces that you don’t have an employee-employer relationship.

Planning to hire several contractors to handle similar tasks? Deel Contractor lets you reuse and edit saved templates for the scope of work.

Subcontracting

This part of the agreement specifies whether the contractor has the right to outsource work to subcontractors. If you wish to allow this, clearly state that:

• Any subcontractors they hire must comply with your terms and conditions
• The contractor is responsible for paying subcontractors and their taxes
• Your company doesn’t take any legal or financial responsibility for the workers they hire

Compensation for the services provided

This section specifies details about the payment, including:

• The hourly or by-project rate
• Due dates or time frames
• Payment schedule
• Payment methods
• Currency
• Structure (e.g, a lump sum or instalments)

Agreements may also note whether payment depends on deliverables and the expected delivery date. For example, a retailer might state that they’ll send a transfer within 10 business days of receiving a delivery from a tradesperson.

Rates are highly individual. However, when you create a contract through Deel, our platform provides market rate insights and prompts you to pay the contractor in their local currency, often a legal requirement.

Benefits and liability exclusion

Establish independent contractor status by clarifying that the contractor has no claim to standard employee benefits. This section of the agreement states you’re not required to cover their:

• Social security
• Health insurance
• Worker’s compensation
• Sick or vacation pay
• Pension

Also, state that you’re not expected to withhold payroll taxes or report on your contractor’s income. This confirms that the contractor is responsible for paying their own self-employment taxes.

While contractors don’t usually get the same benefits as employees, that doesn’t mean they shouldn’t receive company perks. With Deel Perks, you can offer competitive healthcare benefits, perks from popular local brands, and discounts from your services.

Expenses, travel, and reimbursement policies

Independent contractors are responsible for covering the costs associated with providing their services. This often includes operating expenses such as:

• Office supplies
• Phone bills
• Internet
• Software subscriptions
• Equipment
• Transportation

In certain situations, however, the contracted services may demand specialized equipment or travel to fulfill the terms of the agreement. If this applies, devote a section of the agreement to outlining the provisions you’ll make and how you’ll reimburse the contractor.

Managing this process for dozens of freelancers can overload your HR team. Use Deel to help them handle approvals for expenses, reimbursements, and stipends for travel or wellness via the dashboard. Everyone gets a clear view of what you’ve paid and what’s still pending.

Your freelancers also gain access to request an expense, attach receipts, and view the status of their expense request, along with a record of paid items.

Facilities

Contractors typically perform all services from a place of their choosing. Requiring them to work from your company office can count as control and trigger misclassification risks. However, you can still offer them access to your building or a coworking space, provided they have the freedom to decline.

If you grant the contractor access to your facilities, you should state the terms of use in this section. Include details about clocking in, security precautions, and opening hours. Deel gives you the option to request a background check and identity verification if that’s necessary for your industry.

Termination of the agreement

An independent contractor agreement should clearly state when and how the contract can be terminated. While some contracts end automatically once the work is delivered, others allow for early termination with notice.

If you’re working with a contractor on an open-ended basis, include a clause outlining the conditions for termination. Keep in mind that they aren’t employees, so you can’t “fire” them in the traditional sense. However, you can end the agreement early if it’s justified by the terms.

Upon termination, both parties should follow the notice and payment terms outlined in the agreement. The contractor must be paid for any work completed up to the termination date.

When managing a contract through Deel, you can initiate contract termination with a specific end date or choose to end it immediately. We also alert you if your termination notice doesn’t meet local legal requirements.

Resource: Independent Contractor Termination Letter Sample Template

Indemnification clause

The indemnification clause states that the contractor agrees to indemnify or compensate you for all losses and claims that result from their actions. It protects your company if they make a mistake in their work, for example, plagiarising somebody else or committing libel.

Liability insurance

This section indicates that the contractor must have liability insurance and that you’re not responsible for covering the contractor with your own policy.

Some companies omit this section. However, it’s important in high-risk industries where the contractor may be working with valuable assets or handling sensitive data.

Severability

The severability clause says that if any provisions of this agreement become unenforceable, the rest of the contract remains intact. In other words, if one section of the contract were to change or become invalid, the others will remain valid, and both parties must continue to abide by them.

Waivers

A waiver clause states that if either party chooses not to enforce a specific part of the agreement immediately, it doesn’t mean they’ve permanently waived that right. This protects both sides from unintentionally giving up legal protections.

Waiver clauses are standard practice, but must appear in writing to be valid.

Warranties and professional capacity

In this section, the contractor agrees they have the capacity, methods, and equipment to fulfill the task. While they have the right to work with multiple companies and choose their working methods, you need to confirm they’ll be able to complete assignments.

Intellectual property and ownership

Establish clear boundaries and guidelines with contractors about who owns deliverables. Outlining ownership over any IP can help you avoid legal complications while preventing competitors from gaining access to company assets. This clause is especially important for international hires, as intellectual property laws differ per country.

Whether you’re creating employee or contractor agreements, Deel always seamlessly transfers IP ownership to your company.

Confidentiality

Independent contractors often work with sensitive and sometimes even confidential information. Sharing this information can be risky since you have yet to establish trust with the IC.

Include a confidentiality clause (a non-disclosure agreement) in your contractor agreement to mitigate risks. Clarify what constitutes confidential information, including:

• Patent rights
• Copyrights
• Trade secrets
• Marketing plans
• Business strategy
• Customer databases

This section acknowledges the contractor understands what qualifies as confidential information and agrees not to divulge or disclose this information to any third parties. Breaching a confidentiality agreement can be a cause for terminating the contract.

Add compliant non-disclosure agreements to existing contracts using Deel’s pre-written standard NDA document or upload your own signed NDA. All new and existing employees and contractors can countersign the form right on the Deel platform.

Non-compete agreement

A non-compete agreement is a binding document that prevents an independent contractor from working with their client’s competitor during the contract duration and, at times, for a set period afterward.

Not all countries allow non-compete protection for independent contractors. For example, the Fair Trade Commission issued a final rule banning these clauses from agreements nationwide in the US.

If the country or state where you’re operating is not allowing a non-compete agreement, opt for a confidentiality or non-solicitation clause instead.

Can businesses use independent contractor agreement templates?

Using a template can expose your business to legal risk. While many services offer these documents, they haven’t been tailored to your context or vetted by experts.

The main concern is that employment laws vary across locations and industries. What’s more, the differences can be subtle but important, meaning a slight misunderstanding could lead to compliance issues. This makes it challenging to create a one-size-fits-all template that you could repeat and edit across every country where you hire contractors.

Businesses are left with two main options:

1. Hire an HR team to handle all compliance in-house: You can use Deel’s best practice independent contractor agreement template, made with support from our international legal team, to use as a starting point
2. Outsource compliance to a specialist service: Use global solutions like Deel Contractor and Deel Contractor of Record to classify workers, collate all the paperwork, and generate compliant contracts

Option two works best if you lack the resources to manage compliance in-house, for example, if you operate with a lean team or you’re undergoing rapid expansion.

How to negotiate an independent contractor agreement

Client companies are often responsible for creating the agreement, but don’t have the final say. Contractors are free to negotiate details related to:

• Scope of work
• Deliverables
• Deadlines
• Terms of termination
• Payment terms
• Confidentiality and non-compete clauses

While you can make counter-offers, you must be careful not to exert too much control over contractors. Trying to dictate too many elements of the deadlines and deliverables could put you at risk of misclassification. Moreover, if you aren’t flexible and accommodating, you may find contractors simply decline to work with you.

After you negotiate, ensure you amend and sign the new version of the contract, as that’s what makes it legally binding.

How often to renew an independent contractor agreement

Most independent contract agreements already state the working arrangement’s duration and termination date. However, take the time to renew your agreement if details like the contractor’s location, rates, or scope of work change.

When you use Deel, you can quickly edit or update agreements. The platform automatically sends the amended document to the contractor to the contractor to review and counter-sign.

You can make amendments to:

• Job title
• Payment details (rate, invoice cycle, payment due date)
• Contract currency
• Work schedule
• Scope of work
• End of contract (end date and notice period)
• Special clauses

Let Deel create your independent contractor agreements for you

Creating an independent contractor agreement isn’t a one-time task. It’s an ongoing process that involves researching employment laws, keeping clauses up to date, and ensuring everyone follows the terms and conditions.

Deel can prevent these extra tasks from overwhelming your team. Our platform streamlines the entire process of hiring contractors by verifying their status, managing their paperwork, and adding them to the system. We even notify you as regulatory updates or changes to each worker’s situation trigger potential compliance issues.

After you’ve added contractors to your team, Deel Contractor helps you manage invoicing and payments effectively. We ensure timely and accurate transfers with optimal currency conversions to over 90 countries.

If you lack the resources to handle compliance, outsource the entire process to Deel Contractor of Record. This service allows us to become the legal hiring entity on behalf of your company and assume liability in the event of misclassification claims.

Want to hire contractors without the risk? Book a 15-minute slot with a Deel expert to get your questions answered.