What is an independent contractor agreement?
An independent contractor agreement is a contract between a business and a self-employed person who does work for it. It sets out the services, the pay, how invoices work, and the terms that make the relationship a business-to-business one: the contractor uses their own tools, sets their own hours, pays their own taxes, and gets no employee benefits.
Contractors use these all the time. You might bring on a trim carpenter for a few weeks, a helper who works for several crews, or a bookkeeper who comes in once a month.
The agreement doesn't decide worker status
Calling someone an independent contractor in writing doesn't make them one. The IRS and the Department of Labor look at the actual working relationship, not the label. The IRS groups the evidence into three areas:
| Area | What it looks at |
|---|---|
| Behavioral control | Does the business control or have the right to control what the worker does and how they do it? Detailed instructions and training point to an employee. |
| Financial control | Who pays for tools and expenses? Can the worker make or lose money? Do they work for other clients? How are they paid? |
| Relationship | Is there a written contract, benefits, an expectation that the work goes on indefinitely? Is the work a key part of the business? |
The Department of Labor uses its own test under federal wage law, and many states use their own tests for unemployment insurance, workers' compensation and wage laws. Some state tests are stricter than the federal ones. If you set someone's hours, supply their tools and direct their work day to day, a contract won't change how they're treated.
Misclassifying an employee can lead to back taxes, penalties and interest, and claims for unpaid overtime and other wages. If you're not sure, ask an accountant or employment attorney, or check the IRS and Department of Labor guidance.
What to include in an independent contractor agreement
- Both parties. Names, addresses and contact details.
- Services. Describe the results you need, not step-by-step instructions.
- Term. When it starts and how it ends.
- Pay. Hourly, fixed price or per job, and how often the contractor invoices.
- Expenses. Who pays for tools, materials and travel.
- The relationship. Own tools, own hours, free to work for others, own taxes, no benefits.
- Insurance. General liability, and workers' comp if they have employees.
- Confidentiality and work product. Who owns drawings, reports and other work.
- Ending the agreement and how disputes are handled.
Taxes and Form 1099-NEC
Before you pay a contractor, get a completed Form W-9 with their taxpayer ID. If you pay an independent contractor at or above the IRS threshold in a year for services in your business, you generally file Form 1099-NEC with the IRS and give a copy to the contractor. The threshold was $600 for payments made in 2025. A 2025 federal law raised it to $2,000 for payments made from 2026, with inflation adjustments in later years. Check the current IRS instructions for the year you're filing. You don't withhold income tax or pay payroll taxes for a true independent contractor.
Independent contractor agreement sample
The preview shows a complete independent contractor agreement sample. Change how the contractor is paid, who owns the work product, or the notice period, and the clauses update. For a crew or company working under your contract on a construction job, a subcontractor agreement covers retainage, lien waivers and insurance in more detail. When the contractor bills you, they can use an invoice template.
Questions
Is this independent contractor agreement template free?
Yes. Fill it in, then download it as a PDF or Word file. No account needed.
Does signing this make someone an independent contractor?
No. The IRS, the Department of Labor and state agencies look at the actual working relationship, such as who controls the work and who pays for tools and expenses. The agreement helps record the relationship, but it doesn't decide it.
Do I need to send a 1099 to an independent contractor?
Generally yes, if you pay them at or above the IRS threshold in a year for services in your business. It was $600 for 2025 payments and is $2,000 for payments made from 2026. Check the IRS instructions for the year you're filing.
What's the difference between an independent contractor and a subcontractor?
In construction, a subcontractor is usually a business that takes on part of a GC's contract with an owner. An independent contractor is any self-employed person doing work for a business. A subcontractor agreement adds terms like retainage, lien waivers and flow-down from the main contract.
Is this agreement valid in my state?
It's a starting point, not legal advice. States have their own rules and worker status tests. Have an attorney review it before you rely on it.