Independent contractors are usually paid in one of two ways:
- a fixed fee, or
- by unit of time.
a. Fixed fee
Paying an IC a fixed sum for the entire job, rather than an hourly or daily rate, strongly supports a finding of independent contractor status. If paid a fixed sum, the IC risks losing money if the project takes longer than expected, or may earn a substantial profit if the project is completed quickly. Having the opportunity to earn a profit or suffer a loss is a very strong indication of IC status. (See The Common Law Test for information on what makes someone an IC.)
Suggested Language: Alternative A
Payment
In consideration for the services to be performed by Contractor, Client agrees to pay Contractor $[State amount] according to the terms set out below.
b. Unit of time
Paying a worker by the hour or other unit of time usually indicates that the worker is an employee because the worker has no real risk of loss. However, it’s customary for ICs in some occupations—for example, lawyers and accountants—to charge by the hour. Government auditors would likely not challenge the IC status of workers in these occupations as long as they are in business for themselves. (See The Common Law Test for information on what makes someone an IC.)
Suggested Language: Alternative B
Payment
In consideration for the services to be performed by Contractor, Client agrees to pay Contractor at the rate of $[State amount] per [Hour, day, week or other unit of time] according to the terms of payment set out below.
If you pay by the hour, you may wish to place a cap on the IC’s total compensation. This may be a particularly good idea if you’re unsure of the IC’s reliability or efficiency.
Additional Option
Payment
Unless otherwise agreed in writing, Client’s maximum liability for all services performed during the term of this Agreement shall not exceed $[State the top limit on what you will pay].