Independent Contractor Agreement: The Twelve Clauses, and the Seven That Work Against You

An independent contractor agreement has twelve working parts, and a separate set of clauses that should not be in it at all. Seven terms that turn up in ordinary drafts each point toward the person being an employee, which is the opposite of what the document exists to establish.

This page covers what belongs in one, what each side should be checking, and which terms to take out. It is general information about US agreements rather than legal advice. Classification and the enforceability of individual clauses are decided by federal and state law that varies, and for a first hire or a significant engagement a lawyer or an accountant in your state is the right call.

What is an independent contractor agreement?

It is the written agreement between a business and a self-employed person engaged to deliver defined work, setting out what is delivered, what is paid, who owns the result and who carries which risks. Five things separate a good one from a downloaded one.

• It describes a defined piece of work, not an open commitment to be available, because that difference is what the whole category rests on.
• It avoids the clauses that undercut it. Set hours, supplied equipment, exclusivity and mandatory training are all evidence pointing the other way.
• It assigns intellectual property expressly, since ownership does not transfer on its own and a work-for-hire heading will not do it for a freelancer outside the nine statutory categories.
• It caps liability on both sides, because an uncapped indemnity given by an individual is a promise nobody can honor.
• It says who is responsible for tax and benefits, which is necessary and, on its own, nowhere near sufficient.

That table is the part most guidance leaves out. Each of those seven maps onto a factor the IRS names, which means each points toward the wrong conclusion, written down in your own document. None of them decides anything alone: the IRS is explicit that there is no magic or set number of factors and that no one factor stands alone.

1. The label is not the decision

Worth stating first, because everything else in the agreement is built on it. The IRS is explicit: although a contract may state that the worker is an independent contractor, that is not sufficient to determine the worker's status, and the IRS is not required to follow it.

What is assessed instead is the whole relationship, across three categories. Behavioral control asks who directs the work: instructions about when and where to work, what tools to use, where to buy supplies, what order to follow, plus training and how performance is evaluated. Financial control asks who carries the business risk: significant investment in equipment, unreimbursed expenses, the opportunity for profit or loss, whether services are available to the wider market, and how payment is calculated. Type of relationship asks what the arrangement looks like over time: written contracts, benefits, permanency, and whether the work is a key activity of the business.

Other tests exist and can reach different answers on the same facts. Federal wage and hour law applies its own economic reality analysis, currently in flux. California presumes employment unless all three prongs of the ABC test are met, subject to a long list of statutory exemptions. The practical consequence is that an arrangement can be a contractor engagement for one purpose and an employment relationship for another.

What to look for: whether the working arrangement you are describing would survive somebody else applying these factors to it. If it would not, the agreement is the wrong place to fix the problem.

2. The seven clauses to take out

Each of the seven in the figure above appears in ordinary drafts, none of them is unlawful, and each is evidence against the status the document is asserting.

Set hours and company equipment are the two that read most obviously as imported from an employment agreement. Both map directly to behavioral control, and the equipment point also cuts against significant investment, which is one of the things the financial control test looks for, and on which the IRS sets no dollar threshold.

Exclusivity is the one that does the most damage, because being available to the wider market is close to the definition of running your own business. If the concern is a competitor, write a conflicts clause naming them rather than shutting out the whole market.

Training obligations deserve a special mention. The IRS says training a worker on how to do the job is strong evidence that they are an employee, and that periodic or ongoing training about procedures and methods is stronger evidence still. A single onboarding session is not a safe harbor. If the contractor needs information to do the job, give it to them; do not put an obligation to be trained into the agreement.

Applying the employee handbook is a single line that imports hundreds of instructions, and the IRS position is that the more detailed the instructions, the more control the business is exercising. Name the specific policies that genuinely have to apply, usually security, confidentiality and site safety, and exclude the rest expressly.

What to look for: how many of the seven are in your draft. One is a conversation. Four is a document arguing against itself.

3. The twelve clauses, and what each side should check

The rest of the agreement is the ordinary commercial substance, and it reads differently depending on which end of it you are.

Two of those deserve expanding, because they are where the money sits.

Intellectual property does not move on its own. Under section 204(a) of the Copyright Act a transfer has to be in writing and signed by the owner of the rights being conveyed. Work made for hire is narrower than it looks: for an employee, the employer is treated as the author of work created within the scope of employment and owns the copyright, unless the two have expressly agreed otherwise in a signed writing. For a commissioned freelancer the doctrine reaches only nine enumerated categories and needs an express signed agreement. Outside those categories a work-for-hire heading transfers nothing, which is why an assignment clause has to be there as well. Draft it in the present tense as a matter of practice. Section 204(a) does not require it, but the patent cases treat a promise to assign in future as something less than a transfer, and the same drafting habit removes the argument from a copyright assignment.

Indemnity is the clause a contractor is most likely to skip past. An uncapped indemnity given by a sole trader is an unlimited personal exposure attached to an engagement worth a few thousand dollars. Whether it should be capped, mutual, or carved out of the liability cap is usually open to discussion, and it is worth raising before the rate rather than after.

What to look for: whether the liability provisions run in both directions. Mutuality is the fastest tell in any agreement and takes seconds to check once you are looking for it.

4. Restrictive covenants, and what actually changed

This moved recently enough to be worth stating carefully, because a lot of pages have it half right. The Federal Trade Commission's Non-Compete Clause Rule, which would have banned most non-competes nationally, was vacated by a federal court. The Commission stopped defending it in September 2025 and formally removed it from the Code of Federal Regulations in February 2026. There is no federal rule banning non-competes.

That is not the same as federal law being out of the picture, and this is where the half-right pages go wrong. In the same month it abandoned the rule, the Commission ordered a national pet cremation business to stop enforcing one-year non-competes covering around eighteen hundred workers and to tell them they were no longer bound, opened a public request for information on employer non-competes, and sent warning letters to healthcare employers and staffing firms. Its stated position is that enforcement against unreasonable non-competes remains a priority, pursued case by case under section 5 of the FTC Act. So enforceability between the parties is a state law question; whether imposing the clause is itself unlawful can still be a federal one.

On the state side it runs from routinely enforced to void. California section 16600 makes void every contract by which anyone is restrained from engaging in a lawful profession, trade or business, which reaches contractors as well as employees, subject to narrow exceptions for the sale of a business's goodwill and for partnership and LLC dissolution. Section 16600.5 goes further and makes attempting to enforce a non-compete an independent civil violation, including one signed elsewhere. Minnesota's ban is worth knowing for a different reason: in force since 1 July 2023 for covenants entered into on or after that date, its definition of employee expressly includes independent contractors, and reaches a corporate entity a business requires somebody to form as a condition of being paid. North Dakota and Oklahoma also void them broadly.

What to look for, if you are the contractor: a non-compete restricts your business rather than a job, and the case for pushing back is stronger than it would be for an employee. A non-solicit limited to the client's own customers is the usual middle ground.

5. The tax and paperwork side

The agreement sits alongside a small amount of administration that is easy to leave until it is too late, and one number changed this year.

1. Check whether a written agreement is legally required where the work happens. In New York any freelance engagement worth $800 or more needs one with prescribed terms, in Illinois the figure is $500, in California $250, and Los Angeles, Seattle, Minneapolis, Columbus and New York City all have their own rules. Elsewhere there is generally no such requirement.
2. Collect a Form W-9 before the first payment, not at the end of the tax year when the contractor has moved on.
3. Know the reporting threshold, which changed this year. For payments made during 2026, the general $600 threshold under sections 6041 and 6041A of the tax code, the one governing 1099-NEC and most 1099-MISC boxes, rose to $2,000 under the One Big Beautiful Bill Act, with inflation indexing from 2027. The first forms affected are those filed in early 2027. Not every category moved: royalties still report at $10. Some states set their own thresholds, and income below any threshold remains taxable.
4. The contractor handles their own tax, including self-employment tax and quarterly estimated payments, and the agreement should say so.
5. If the classification is genuinely unclear, either party can file a Form SS-8 asking the IRS to determine it, though the IRS says a determination may take at least six months, and in practice it often takes longer.
6. Section 530 relief can shield a business from employment tax liability where it had a reasonable basis for treating the worker as a contractor, filed the required information returns consistently, and never treated a worker in a substantially similar position as an employee for any period after 1977.

What to look for: whether the raised 1099 threshold has quietly changed your own process. It changes reporting, not taxability, and not classification.

6. What reading the agreement will not tell you

It will not tell you whether the classification is right, which is a question about the working relationship rather than the text. It will not tell you whether a restrictive covenant is enforceable where you live. It will not tell you whether the rate is fair. And it will not surface what is missing, because a document with no intellectual property clause looks exactly like one that did not need it.

The ten minute version

When a full read is not going to happen, this order finds the most.

1. Any indemnity, and whether liability is capped on both sides.
2. Intellectual property: is there a present-tense assignment, and does it sweep in your existing tools.
3. The seven clauses in the first figure, and how many are present.
4. Payment: the amount, the trigger, the due date and the late payment term.
5. Termination, and what is owed for work in progress.
6. Any non-compete, and which state's law governs.

Anything the agreement does not mention is a gap rather than a neutral silence, and the default that fills it was not written with you in mind.

Where RateMyContract fits in

These get signed unread because they arrive looking finished and the only obviously blank parts are the name and the rate. Everything else reads like boilerplate somebody competent already thought about. RateMyContract exists to close that gap: upload the draft and it reads it back in plain English and flags clauses people commonly overlook, including the indemnity and the intellectual property terms that decide most of what is actually at stake.

What it does not do is give legal advice, decide whether your worker is an employee or a contractor, tell you whether a clause is enforceable in your state, or supply a template. It has not been independently benchmarked and publishes no accuracy figure, here or anywhere. It reads what you have, which is the step between receiving a document and understanding it.

When to talk to a lawyer

Worth the fee if the engagement involves intellectual property you intend to own or sell on, if there is an uncapped indemnity or a personal guarantee in the draft, if a restrictive covenant would affect your ability to keep working, if the work is central to what the hiring business sells, which is the fact pattern classification questions turn on, or if a tax authority or labor department has already raised the question. An accountant is often the cheaper first call on classification alone.

The short version

An independent contractor agreement has twelve clauses, and the document is only as good as the working arrangement it describes. The IRS says a contract calling somebody a contractor is not sufficient to make them one, and assesses behavioral control, financial control and the type of relationship instead. Seven clauses that appear in ordinary drafts feed those factors in the wrong direction, and set hours, supplied equipment and exclusivity are the three that do the most damage. Assign intellectual property expressly and in the present tense, because it does not transfer on its own. Cap the indemnity. Check any non-compete against your state, since the federal rule was removed in February 2026, though the FTC still pursues unreasonable non-competes case by case. And collect the W-9 before the first payment rather than after the last.

If a draft is in front of you now, RateMyContract will read it back in plain English before you sign. For the wider picture, work contract agreement template covers choosing between the three agreement types and the places a written contract is legally mandatory, key clauses in an employment contract covers the employment alternative, and the contract checklist works through any agreement point by point.

Frequently asked questions about independent contractor agreements

What is an independent contractor agreement?

A written agreement between a business and a self-employed person engaged to deliver defined work, covering the services, the fee and payment terms, who owns the intellectual property, who carries which risks, and how the engagement ends. Sometimes searched as an independent contract agreement, which means the same thing. It is not an employment contract, and it does not on its own decide which of the two the relationship legally is.

Does an independent contractor agreement make someone an independent contractor?

No. The IRS states that although a contract may say the worker is an independent contractor, that is not sufficient to determine status, and the IRS is not required to follow it. Classification is assessed on the whole relationship across behavioral control, financial control and the type of relationship. Federal wage and hour law and individual states apply further tests that can reach different answers on the same facts.

What should be in an independent contractor agreement?

Twelve things: the parties by legal name, the services, fees and invoicing, expenses, intellectual property, liability and indemnity, insurance, confidentiality, a statement of status and tax responsibility, term and termination, any restrictive covenants, and governing law and forum. Outside the jurisdictions that mandate specific terms, none of these is legally required, but a document missing intellectual property or a liability cap is missing the parts that carry the most money.

Which clauses should not be in an independent contractor agreement?

Set hours, a requirement to use company equipment and systems, exclusivity, mandatory training and onboarding, and a clause applying the employee handbook. Each maps onto a factor the IRS uses to identify an employee, so each is evidence against the status the document is claiming. Uncapped hourly pay with no deliverable and an indefinite term point the same way, more mildly. None of them decides classification alone.

Do I own the work my contractor produces?

Not automatically. For an employee, the employer is treated as the author of work created within the scope of employment and owns the copyright, unless the two expressly agreed otherwise in a signed writing. For a commissioned freelancer, work made for hire reaches only nine enumerated categories of work and requires an express signed agreement, so outside those the label transfers nothing. What transfers ownership is a signed written assignment under section 204(a) of the Copyright Act. Section 204(a) does not require any particular tense, but the present tense is the safer drafting habit.

Can an independent contractor agreement include a non-compete?

It can. Whether it is enforceable between the parties is a state law question: California section 16600 voids non-competes broadly and reaches contractors as well as employees, and Minnesota's ban, in force since 1 July 2023, expressly covers independent contractors and the corporate entities they are required to form. North Dakota and Oklahoma also void them broadly. The Federal Trade Commission's rule banning most non-competes was vacated, abandoned in September 2025 and removed from the Code of Federal Regulations in February 2026, so there is no federal ban, but the Commission has continued to act against unreasonable non-competes case by case under section 5 of the FTC Act.