Things you need to know about Independent Contractor Agreement.
1. What is an Independent Contractor Agreement?
An independent contractor agreement is a written agreement for the contractor to render service to the principal as an independent contractor (and not as an employee). The agreement describes, among others, the (a) service to be rendered by the contractor; (b) the compensation due the contractor; and (c) the nature of the relationship as an independent contractor (and not as an employee).
2. When do you need an Independent Contractor Agreement?
You need an independent contractor agreement if you will hire an independent contractor. The agreement is often used when a contractor is hired to complete a project or task on a short term basis. This is especially necessary for contractors, freelancers or consultants who want to have a written agreement with their client. An example is when a business commissions a freelance web designer to create the company's website. In this case the business can use an independent contractor agreement to hire the freelancer.
3. How can an Independent Contractor Agreement protect you?
An independent contractor agreement clearly defines the relationship between the contractor and principal as one of an independent contractor (and not as an employment relationship). This allows the contractor to comply with all the legal requirements imposed on independent contractors (i.e. personally pay income tax and comply with BIR filings). On the other hand, the principal is not required to provide the usual employee benefits to the contractor because the contractor is not treated as the principal's employee (i.e. SSS contributions, bonuses).
4. What is the difference between an Independent Contractor Agreement and an Employment Contract?
An independent contractor agreement is used to hire an independent contractor. A contractor is a business or self-employed individual that provides a service to a client in exchange for compensation. A typical example of a contractor is a consultant or freelancer. Further, a contractor has more control or autonomy over how to complete a project and normally uses his/her own resources to perform the service.
On the other hand, an employment contract is used to hire an employee. An employee works under the direct control and supervision of his/her employer and is paid wages by the employer. The employee also enjoys employment benefits which are granted by company policy and the law (i.e. healthcare, vacation leaves).
5. What information do you need to create an Independent Contractor Agreement?
To create your independent contractor agreement you’ll need the following minimum information:
- The type of principal (i.e. individual or business) as well as name and details (i.e. nationality and address)
- The type of contractor (i.e. individual or business) as well as name and details (i.e. nationality and address)
- The service to be performed by the contractor
- The compensation to be paid the contractor
- The duration of the agreement