Contractor agreements, simplified: What to include and why it matters

Important disclaimer: This guide provides general information about contractor agreements. It is not legal advice. Contract law varies by jurisdiction. Consult qualified legal counsel to draft or review agreements for your specific situation.

A contractor agreement is your legal foundation. It defines the relationship, protects your intellectual property, establishes payment terms, and provides recourse if things go wrong. Without a written agreement, you have no protection if disputes arise.

This guide breaks down what to include in contractor agreements: essential clauses, why they matter, and country-specific considerations. It's practical, not exhaustive. For complex situations, consult counsel.

The structure of a good contractor agreement

A complete contractor agreement has several key sections. Each serves a specific purpose and protects you in different ways.

Parties and relationship. Identify both parties with full legal names and addresses. Explicitly state the relationship is independent contractor, not employment. This is critical for classification. Example language: "Contractor is an independent contractor, not an employee, and is responsible for all taxes, insurance, and benefits."

Scope of services. Describe the general type of work the contractor will perform. Keep this broad in the master agreement—specific projects go in separate Statements of Work. Example: "Contractor will provide graphic design services as requested by Company and detailed in project-specific Statements of Work."

Payment terms. Define how and when payment happens. Include rate structure (hourly, project-based, or milestone-based), payment schedule (net 15, net 30), and what contractors must include in invoices. Example: "Contractor will submit invoices upon milestone completion. Company will pay within 15 days of invoice approval."

Intellectual property. State that all work product belongs to you. Include both work-for-hire language and assignment of rights to ensure ownership. Example: "All work product created by Contractor shall be considered a work made for hire and shall be the sole property of Company."

Confidentiality. Prohibit disclosure of your confidential information. Define what's confidential and set a duration. Example: "Contractor will not disclose Company's confidential information, including business plans, customer data, and proprietary processes, for a period of 3 years."

Term and termination. Define how long the agreement lasts and how either party can end it. Include notice periods and what happens to work in progress. Example: "Either party may terminate this agreement with 14 days written notice. Upon termination, Contractor will deliver all completed work."

Liability and indemnification. Limit your liability and require the contractor to indemnify you for their actions or breaches. Example: "Contractor will indemnify Company against claims arising from Contractor's work or violation of this agreement."

Governing law and dispute resolution. Specify which jurisdiction's laws apply and how disputes will be resolved. Example: "This agreement shall be governed by the laws of [State/Country]."

Statement of Work: Project-specific details

The Statement of Work (SOW) is project-specific and works alongside the master agreement. It defines exactly what the contractor will deliver for a particular project.

Project description. Describe what you're building or creating. Provide context and objectives. Example: "Design a new company website to improve user experience and increase conversions by 20%."

Specific deliverables. List each deliverable with clear descriptions. Be specific, not vague. Don't write "Design a website." Instead: "5 website pages (Home, About, Services, Blog, Contact) with desktop and mobile mockups in Figma, including all navigation and interactive elements."

Milestones and deadlines. Break work into phases with specific dates. Example: "Milestone 1: Wireframes by October 1. Milestone 2: Design mockups by October 15. Milestone 3: Final files by October 30."

Payment schedule. Tie payments to milestones. Example: "30% upon SOW signing, 40% upon Milestone 2 approval, 30% upon final delivery."

Acceptance criteria. Define how you'll judge completion. What does "done" actually mean? Example: "Deliverables must match approved wireframes, be provided in editable Figma format with all source files, and pass accessibility standards."

Revision policy. Specify how many revision rounds are included and what additional revisions cost. Example: "2 rounds of revisions included in deliverables. Additional revisions billed at $100/hour."

Reference to master agreement. The SOW should state it's governed by the master agreement: "This SOW is governed by the Contractor Agreement dated [date] between Company and Contractor." Both parties should sign the SOW before work begins.

Intellectual property: The most important clause

Intellectual property clauses are critical for protecting your business. Without them, you might not own the work you paid for.

Work-for-hire language. In the U.S., work-for-hire means the work is automatically owned by the company that commissioned it. Example language: "All work product created by Contractor under this agreement shall be considered a work made for hire under U.S. copyright law and shall be the sole and exclusive property of Company."

Assignment of rights. As a backup (and for jurisdictions where work-for-hire doesn't apply automatically), include an assignment clause. Example: "To the extent any work product is not a work made for hire, Contractor hereby assigns to Company all right, title, and interest in and to such work product, including all copyrights, patents, trademarks, and other intellectual property rights."

Moral rights waiver. In some countries (especially in Europe), creators have "moral rights" that protect their interest in their creative work, even after they sell it. Include a waiver if possible. Example: "Contractor waives all moral rights in the work product to the extent permitted by law."

Pre-existing materials. Clarify that the contractor's pre-existing work (templates, code libraries, toolkits) remains theirs, but you get a license to use it in the work. Example: "Contractor retains ownership of pre-existing materials but grants Company a perpetual, royalty-free license to use such materials as incorporated in the work product."

Third-party materials. Require the contractor to disclose any third-party materials (stock photos, fonts, open-source libraries) and ensure you have proper licenses. Example: "Contractor will disclose all third-party materials used and ensure Company has all necessary licenses for their use."

Confidentiality clauses

Contractors often access sensitive information. Confidentiality clauses protect your business secrets, customer data, and proprietary processes.

Define confidential information clearly. Be specific about what's confidential. Example: "Confidential Information includes business plans, financial data, customer lists, product roadmaps, source code, and any information marked as confidential or that a reasonable person would consider confidential."

State obligations. Clarify what the contractor must do (and not do) with confidential information. Example: "Contractor will (a) not disclose Confidential Information to third parties, (b) use Confidential Information only for performing services, and (c) protect Confidential Information with reasonable security measures."

List exceptions. Clarify what's not confidential to avoid overly broad restrictions. Example: "Confidential Information does not include information that (a) is publicly available, (b) was already known to Contractor, (c) is independently developed by Contractor, or (d) is required to be disclosed by law."

Set duration. Specify how long confidentiality obligations last. Typical durations are 2-5 years after the relationship ends. Example: "Contractor's confidentiality obligations shall continue for 3 years after termination of this agreement."

Require return of materials. Require the contractor to return or destroy confidential materials when the relationship ends. Example: "Upon termination, Contractor will return or destroy all Confidential Information and certify in writing that this has been completed."

Payment and invoicing clarity

Clear payment terms prevent disputes and ensure contractors know when and how they'll be paid.

Specify the rate structure. Define how you'll pay: hourly rates, project-based fees, or milestone-based payments. Example: "Contractor will be paid $5,000 per project as detailed in each SOW, with payments tied to milestone completion."

State the payment schedule. Specify when payment happens after invoicing. Common terms are net 15 (payment due within 15 days) or net 30. Example: "Company will pay approved invoices within 15 days of receipt."

Detail invoicing requirements. Tell contractors exactly what to include in invoices so you can process them quickly. Example: "Invoices must include invoice number, date, description of work completed, hours or milestones, amount due, and your payment instructions."

Address expenses. Clarify whether you'll reimburse expenses and what requires pre-approval. Example: "Contractor is responsible for all expenses unless pre-approved in writing by Company. Approved expenses will be reimbursed with receipts."

Consider late payment terms. Include late fees to protect contractors and incentivize timely payment. Example: "Invoices not paid within the agreed net terms will accrue interest at 1.5% per month."

For international contractors: Specify payment currency and clarify that the contractor is responsible for their own taxes. Example: "Payment will be made in USD. Contractor is responsible for all taxes and will provide appropriate tax forms (W-9 for U.S. tax purposes or W-8BEN for foreign status)."

Termination clauses: When things end

Termination clauses define how either party can end the relationship and what happens to work in progress.

Termination for convenience. Allow either party to end the relationship with notice. Example: "Either party may terminate this agreement with 14 days written notice for any reason."

Termination for cause. Allow immediate termination for serious breaches. Example: "Either party may terminate immediately if the other party (a) breaches a material term and fails to fix it within 7 days, (b) becomes insolvent, or (c) engages in illegal conduct."

Effect of termination. Clarify what happens when the agreement ends. Example: "Upon termination, (a) Contractor will deliver all completed work, (b) Company will pay for work completed through the termination date, (c) Contractor will return all confidential materials, and (d) IP and confidentiality obligations survive."

Handle work in progress. Define how to handle incomplete work. Example: "For work in progress at termination, Company will pay for completed milestones only. Partially completed work will not be paid unless mutually agreed."

Survival clauses. Specify which clauses continue after termination. These typically include: "The following sections survive termination: Intellectual Property, Confidentiality, Indemnification, and Governing Law."

Country-specific considerations

Contract requirements and enforceability vary significantly by country. Some jurisdictions require specific language or have restrictions on certain clauses.

EU contractors. Include GDPR compliance language if the contractor will handle personal data. Moral rights waivers may not be enforceable in all EU countries. Non-compete clauses are heavily restricted in most EU countries.

UK contractors. Consider IR35 implications. The agreement should clearly establish contractor status and independence. Include language about the contractor's right to send substitutes and lack of mutuality of obligation (if applicable).

Latin American contractors. Some countries (like Brazil) have strict labor laws that can reclassify contractors as employees. Use clear project-based language and avoid long-term exclusive relationships.

Asian contractors. In countries like India and the Philippines, ensure the agreement complies with local contract law. Some countries require specific registration or documentation for cross-border services.

For high-value or long-term international contractors, have local counsel review the agreement. What's standard in one country may be unenforceable or create risk in another.

Storage and organization

Signed agreements are useless if you can't find them when you need them.

Keep agreements in one place. Use contractor management software, cloud storage with organized folders, or a document management system. Don't scatter them across email, desktops, and shared drives.

Use consistent naming. Example: ContractorName_Agreement_Date.pdf, ContractorName_SOW_ProjectName_Date.pdf. Consistent naming makes documents easy to find and sort.

Track versions. If you amend an agreement, keep both the original and amended versions. Label them clearly: ContractorName_Agreement_Original.pdf, ContractorName_Agreement_Amendment1.pdf.

Keep for 7 years minimum. Store signed agreements for at least 7 years after the relationship ends. This covers tax audits, potential disputes, and classification reviews.

Control access. Limit who can access agreements. HR, finance, and legal should have access. Individual managers may only need access to their own contractors' agreements.

Common mistakes to avoid

No written agreement. Verbal agreements are unenforceable and provide no protection. Always have a written, signed agreement before work begins—even for small projects.

Missing intellectual property clauses. Without work-for-hire and assignment language, you might not own the work you paid for. Always include comprehensive IP provisions.

Vague scope of services. "Provide design services" isn't a scope. Be specific about what the contractor will do. Use SOWs for project-specific details.

One-sided terms. Extremely one-sided agreements can be unenforceable in some jurisdictions or damage relationships. Balance protection with fairness.

Ignoring local law. Using a U.S. template for an EU contractor without modifications can create enforceability issues. Research local requirements or consult local counsel.

Not storing properly. Keeping agreements scattered across email and desktops means you can't find them when you need them. Centralize storage from day one.

The bottom line

A good contractor agreement protects both parties. It should cover relationship status, scope, payment, intellectual property, confidentiality, and termination. Use Statements of Work for project-specific details.

For standard projects with contractors in your home country, a well-drafted template reviewed by counsel once is sufficient. For complex situations—high-value work, sensitive intellectual property, international contractors in strict jurisdictions—have counsel draft or review the specific agreement. The cost of legal review is far less than the cost of disputes or misclassification.

Store signed agreements securely and keep them for at least 7 years. Good contracts prevent disputes before they start.