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Know the Rules Before You Hire an Independent Contractor Pt. 3
THE INDEPENDENT CONTRACTOR (IC)Part 3 of Series of 3
"Should companies have freelancers and consultant sign written independent contractor agreements?"
Absolutely. Using a written agreement avoids later disputes by providing a written description of the services the IC is to perform, when they are to perform and how much the IC will be paid.
A written IC agreement can also help establish a worker's IC status. Although an agreement by itself is never enough to make a worker an IC, it will help show the IRS and other agencies that both you and the worker intended to create a hiring firm/IC relationship, not an employer/employee relationship. Newly published IRS training materials state that where all the other factors are evenly balanced, a written IC agreement may tip the scale to the IC side.
But remember, an IC agreement is only useful if it is heeded, and will be useless if you "treat" a worker as you do an employee.
"What about intellectual property ownership?"
When you hire an IC to create a work of authorship such as a computer program, written work, artwork, musical work, photographs or multimedia work, you need to be concerned with copyright ownership.
The copyright laws contain a major trap for the unwary - they say that unless the work an IC creates falls into one of nine (9) categories, the hiring firm will not own the copyright to the IC's work unless it obtains a written assignment of copyright ownership. An assignment is simply a transfer of copyright ownership. It should be obtained before an IC starts work and the assignment should be included in the IC agreement.
Certain specially commissioned or ordered works by IC's are considered to be works for hire to which the hiring firm automatically owns all copyright rights. However, both you and the IC must both sign a written agreement stating that the work is made for hire. Again, this should be included in the IC agreement. These works include:
- A contribution to a collective work (i.e. more than one author)
- A part of an audiovisual work (e.g. motion picture screenplay)
- A translation
- Supplementary works (e.g. forewords, after words, supplemental pictorial illustrations, maps, charts, editorial notes, bibliographies, appendixes and indexes)
- A compilation (e.g. electronic database)
- An instructional test
- A test
- Answer material for a test
- An atlas
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