Contractor agreements, simplified

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

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

Agreement anatomy

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 (you and the contractor) with full legal names and addresses. Explicitly state the relationship is independent contractor, not employment. Example: "Contractor is an independent contractor, not an employee, and is responsible for all taxes and insurance."

Scope of services: Describe the general type of work the contractor will perform. Keep this broad—specific projects go in SOWs. 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, milestone-based), payment schedule (net 15, net 30), and invoicing requirements. 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. Example: "All work product shall be considered a work made for hire and shall be the sole property of Company. To the extent any work product is not a work made for hire, Contractor assigns all rights to 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 and return confidential materials."

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

Governing law and dispute resolution: Specify which jurisdiction's laws apply and how disputes will be resolved (arbitration, mediation, or courts). Example: "This agreement shall be governed by the laws of [State/Country]. Disputes shall be resolved through binding arbitration."

Statement of Work (SOW)

The 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."

Specific deliverables: List each deliverable with clear descriptions. Be specific. Example: "5 website pages (Home, About, Services, Blog, Contact) with desktop and mobile mockups in Figma, including 2 rounds of revisions."

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. Example: "Deliverables must match approved wireframes, be provided in editable Figma format, and include all source files."

Revision policy: Specify how many revision rounds are included and what happens if more are needed. Example: "2 rounds of revisions included. Additional revisions billed at $100/hour."

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

IP clauses in detail

IP clauses are critical. Without them, you might not own the work you paid for. Include both work-for-hire and assignment language.

Work-for-hire: In the U.S., work-for-hire means the work is automatically owned by the hiring party. 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 property of Company."

Assignment of rights: As a backup (and for jurisdictions where work-for-hire doesn't apply), 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 can't be transferred. 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, etc.) remains theirs, but you get a license to use it. 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, libraries) and ensure you have proper licenses. Example: "Contractor will disclose all third-party materials and ensure Company has all necessary licenses for their use."

Confidentiality and NDAs

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

Definition of confidential information: 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."

Obligations: State 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 the same care used for Contractor's own confidential information."

Exceptions: Clarify what's not confidential. Example: "Confidential Information does not include information that (a) is publicly available, (b) was known to Contractor before disclosure, (c) is independently developed by Contractor, or (d) is required to be disclosed by law."

Duration: Set how long confidentiality lasts. 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."

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 done."

Payment and invoicing

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

Rate structure: Define how you'll pay. Options include 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."

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

Invoicing requirements: Tell contractors what to include in invoices. Example: "Invoices must include invoice number, date, description of work, hours or milestones completed, amount due, and payment instructions."

Expenses: Clarify whether expenses are reimbursed 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."

Late fees: Consider including late payment terms to protect contractors. Example: "Invoices not paid within 30 days will accrue interest at 1.5% per month."

Currency and taxes: 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 or W-8BEN)."

Termination clauses

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 cure 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) all IP and confidentiality obligations survive."

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

Country-specific considerations

Contract requirements vary 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.

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

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 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 risky in another.

Storage and versioning

Signed agreements are useless if you can't find them. Implement a simple storage and versioning system.

Central storage: Keep all signed agreements in one location—contractor management software, cloud storage, or document management system. Don't scatter them across email, desktops, and shared drives.

Naming convention: Use consistent file names. Example: ContractorName_Agreement_Date.pdf, ContractorName_SOW_ProjectName_Date.pdf. This makes documents easy to find and sort.

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

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

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

Common mistakes

No written agreement: Verbal agreements are unenforceable and provide no protection. Always have a written, signed agreement before work begins.

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

Vague scope: "Provide design services" isn't a scope. Be specific about what the contractor will do, even in the master agreement. Use SOWs for project-specific details.

One-sided terms: Extremely one-sided agreements can be unenforceable or create bad relationships. Balance protection with fairness.

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

The bottom line

A good contractor agreement protects both parties. It should cover relationship status, scope, payment, IP, confidentiality, and termination. Use SOWs for project-specific details. Store signed agreements securely and keep them for at least 7 years.

For standard projects, a well-drafted template reviewed by counsel once is sufficient. For complex situations—high-value work, sensitive IP, 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.