7. How to Structure an Independent Contractor Relationship

How to Properly Document the Relationship

A contract for service, entered into with independent contractors, should ensure the following:

• the contract should be structured such that it is not construed as a contract of service.
• the employer should not exercise any overt form of control or direct the manner and process in which the services under the contract should be performed. That said, the employer may lay down the qualifications or skills to be possessed by the contract labourers.
• the agreement is for a fixed term; care should be taken to ensure that such contracts are not for a long duration and are not subjected to multiple renewals as it may be construed as continuous services on part of the independent contractor, increasing the risk for her/him to be misclassified as an employee.
• the contract must state that the independent contractor is being engaged on a principal-to-principal basis and on a non-exclusive basis.
• with respect to payments, the consideration paid to an independent contractor should not be paid as a salary since it may indicate that the relationship is one for contract of Further, all payments to a contractor should only be made to the contractor and not directly to the contract labourers. Any payment made directly to a contract labourer will result in the employer being considered as the principal employer.
• with regard to both independent contractors and contractor labourers, the employer/principal employer should ensure that they are treated differently from their own permanent employees. In the event that the employer is providing similar benefits, enforcing similar policies or engaging the independent contractor or contractor labourer to undertake similar tasks, such a contract may give the appearance of a contract of service.
• it is highly recommended that the benefits that are generally provided to permanent employees (statutory as well as discretionary) should not be provided to the individual contractors/consultants.
• the contract for service should specifically provide for a termination clause permitting termination without cause, such that there is no obligation to ascribe reasons to the independent contractors and contractors.
• the agreement should clearly state that the principal employer will not direct or control the contract labour and the manner in which the work should be performed, subject, of course, to satisfaction of certain required quality controls and customisations desired by the principal employer.

Day-to-Day Management of the Relationship

A contract for service should be devoid of any kind of control or supervision from the principal employer or employer, as the case may be. Therefore, such employers should avoid involvement in day-to-day management of the work undertaken by the independent contractors and contract labourers.