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3. How to Structure an Independent Contractor Relationship

a. How to Properly Document the Relationship

It is recommended to draft a written agreement to specify the rights and obligations of the independent contractor and the business. The relationship between the two parties should be structured in a way to avoid elements specific to a subordinate relationship.

The business should keep the following in mind when drafting such an agreement:

  • do not stipulate the independent contractor's department, job title, report line, working hour, working place, monthly salary, paid annual leave, social securities, and etc. That are typically contained in an employment contract.
  • the employee seriously violates the labor disciplines or the employer's rules and regulations;
  • do not stipulate that the independent contractor should work per the superior's instructions or observe the labor disciplines and internal policies of the business;
  • it should be stipulated what specific service or work product is required by the business, and when the service or work products should be delivered to the business;
  • it should be stiupulated that the independent contractor is free to organize his/ her work, working time working manner, etc. As long as he/she could provide the service or work product by the deadline as required by the business;
  • it should be stiupulated that the independent contractor's service fees depends on the quantity and quality of the service or work product completed, and that the business has the right to appraise the service or work product and require the independent contractor to make correction or improvement if the service or work product does not satisfy its requirements;

b. Day-to-Day Management of the Relationship

The general principle is, if the business wishes to avoid re-characterization of an independent contractor as an employee, the business should give the contractor as much independence as reasonably possible, almost as though that contractor were a separate business entity.

Specifically, both the business and the independent contractor must act in consistence with the relationship described in their written agreement. For example, the service fees should be paid in a way different from the salary paid to employees. This means, the fees should not be fixed, but depend on the quantity and quality of each service or work product provided by the independent contractor. Also, the business shall not have any action or statement in connection with the overtime payment, attendance, application for leaves, performance review, disciplines, and etc. for the independent contractor in its daily management.

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