The relationship between employer and contractor is less formal than that of an employer and employee. For this reason, many business people don’t see the need to have a contract in place.
This is a big mistake that not only puts your business at risk, but also gives you no legal recourse if the contractor doesn’t follow through on what they’ve agreed to. It’s not that we don’t appreciate it when people are able to do business over a handshake, but based on the horror stories we’ve seen firsthand -- we prefer business with a handshake and a signature.
Contractor vs Employee
The debate between classifying a worker as employee or contractor has been around for a long time and currently, it’s getting a lot more heated. There’s a fine line between classifying workers as employees or independent contractors, but each one is significantly different from the perspective of the business.
With independent contractors, you aren’t responsible for providing insurance or withholding social security like you are with employees. However, you are also limited to what you demand of contractors.
What we’re seeing today are a lot of companies who misclassify employees as contractors that are being sued and forced to pay for all of those benefits they didn’t provide. Without an independent contractor agreement that clearly defines the relationship between both parties, it makes it very difficult for you to make the case that you aren’t misclassifying your workers.
Liability Protection
Let’s say you own a company that provides painting services for people and you hire independent contractors to do all of the labor for you. If one of those painters breaks a valuable painting or ruins an expensive piece of furniture in your customer’s home, guess who they are going to hold responsible? They might be mad at the person who did it, but they will be looking at the company they hired to make it right.
Without an independent contractor agreement that clearly defines the liability for such incidents, you will have to take responsibility for the damage yourself. In many cases you might decide to take that route anyway, but you should always have a contract where the independent contractor assumes liability for damage that they cause. This protects you from bad contractors and from circumstances where you don’t want to pay for the damage yourself.