An independent contractor, or “freelancer,” is a self-employed professional who offers services for payment. Unlike employees, independent contractors are free from company rules. In other words, contractors must deliver the services they agree to perform, but what they do (and how they do it) is solely up to them.

The freedom contractors enjoy comes with certain trade-offs, including the loss of unemployment insurance, workers’ comp, sick leave, and a stable salary. Contractors are also responsible for deducting and paying their own taxes.

The IRS designates workers as either employees or contractors. In general, a person is considered a contractor if they meet most of the criteria across three categories:^[1]

• Behavioral – Contractors must control how and when they perform their services.
• Financial – Contractors determine their rate and are responsible for their own tools, transportation, and equipment.
• Relationship to Client – Contractors cannot be provided insurance or other benefits from their clients.

It’s important to note that a person doesn’t need to check every box to be classified as a contractor. The line between employee and contractor can be blurry, so the hiring party will need to choose the work classification that fits best.

The following tax forms are required if a client pays a contractor $600 or more in a single year:^[2]

• Form W-9 – Clients give contractors Form W-9 to complete and return before work begins. While not filed with the IRS, it relays information needed to verify the contractor and prepare Form 1099-NEC.
• Form 1099-NEC – Form 1099-NEC reports contractor payments. The client files it with the IRS and provides a copy to the contractor. A separate form is required for each contractor paid $600 or more annually.

Client + Contractor Info – The names and addresses of the contractor and the hiring client should be provided. If the client is a registered entity, the address should be the company’s principal office, not the worksite (unless both are the same).

List of Services – The services should be described in one to two sentences, providing enough information to convey what services are included and excluded.

Payment – Payment terms are essential to forming a complete agreement. The contract should specify the contractor’s rates, the payment schedule, and any contingencies (e.g., payment upon completion).

Termination – The agreement should provide conditions for termination. Most contracts end upon the completion of services or on a designated expiration date.

Insurance – Clarifying the contractor’s insurance obligations is essential. Agreements may require a minimum coverage amount (e.g., $1,000,000 single limit) or allow any amount that complies with state insurance laws.

Contractor Status – The agreement should include a statement confirming that the worker is deemed an independent contractor in the eyes of the IRS.

Indemnification – An indemnification clause frees the client from any liability resulting from damage or loss caused by the contractor’s services.