In the last installment of this article I gave answers to some of the questions people have about why they should use an independent contractor agreement when they either perform or hire out work.

There are still some things I did not go over, and you must understand everything in order to see the value of using an independent contractor agreement. It does not matter how small the job might be either as some people think. In the following paragraphs I pick up where I left off in the last article.

Is there any way to transfer rights to intellectual property if someone fails to mention it in the independent contractor agreement?

Sometimes people who hire independent contractors will forget to include in the contract that the work is supposed to be “for hire”. What this means is the work will not belong exclusively to the client once it is turned in.

However, even if you fail to mention in the contract what the stipulation are the rights to the property can still be transferred. The independent contractor can still transfer ownership rights. The transfer must in written form as well in order for it to stand up.

If no written agreement is signed for work you decide to hire out

When you hire an independent contractor you are paying them to perform work for you that is designed to benefit you and only you. In the case of people who perform creative work, such as those who create web sites, those who create graphics, and those who write articles, you must have exclusive rights to the work.

If there is no independent contract then the clients will not own the work and the creator can still use the work without legal recourse. This is even if it has been paid for by the client.

What you are actually getting if you do not sign an independent contractor agreement

Have you ever heard of the term licensing? A license is sort of like a permission slip to possess or use something for benefit. The benefit can be monetary of otherwise. People sell licenses all the time for various things. Licenses can also be sold for work that is deemed intellectual property. A license is not what you want when you hire out someone to perform creative work for you.

You want to have full rights, which means you and only you can use the created work. Without an independent contractor agreement you will not have exclusive rights. You will simply have a license, and I am sure that is not what you intended. Only having an independent contractor agreement can protect you from these instances.

The name of the game when it comes to hiring an independent contractor is making sure you are protected. Having an independent contractor agreement in place is the only way to specify what you want and make sure it hold up if a problem came up in the future.

When you are dealing with an independent contractor it is important that they know where they stand with you. An independent contractor agreement is the best way to do this. But even in this case you must still make sure not to do things that can have the taxing authorities misinterpret your relationship. Here are some questions you need to answer in order to know if the variety of enforcement agencies might see your relationship with your IC as an employee.

Beyond an independent contractor agreement- Do you control how the work is performed or does the independent contractor have full control?

In order for you to know whether you are engaging an IC or a regular employee you need to give some thought to how much control you have over them and if you are exerting it. If your business is controlling and directing how work is done and more importantly how many hours someone must work, then you are acting as an employer. There are actually freelance sites that would be in violation of the later.

Do you control various financial components concerning who you have hired?

When you have a regular employee you are responsible for paying them per hour for work performed. You will have to take out taxes from their pay, and you will have to pay several expenses related to having a regular employee. As long as you do not attempt to direct or control any financial aspects of the independent contractors you hire, then they cannot be classified as an employee.

Do you make it clear to the person you are paying that they are an independent contractor?

Even if a person is not getting benefits associated with having a regular job, they might still believe they are a regular employee. Sometimes people will do this without being aware of it, but in some instances this can be used against the person hiring the independent contractor. You have to make it very clear that the person you are hiring is an independent. If they confuse the relationship then they might expect certain things, things that if they do not get they can go after you for. An indepenendent contractor agreement helps in this case.

Please be sure to read the next installment of this article series, where I will provide more information to help you understand if you are making mistakes concerning misclassification of employees. This way you can hire out work without fear of possible penalties in the future because of misclassification.

In the last article I left off by giving you some ways to think about whether or not you were doing things that might classify your Independent Contractor as an employee. As mentioned in the last article, an independent contractor agreement is the only way to make sure that both parties know where they stand. There are all sorts of possible consequences you can face if you misclassify someone. A lot of these consequences revolve around taxes and other liabilities.

So you need to be absolutely sure that the person you are hiring understands, by means of an independent contractor agreement, that they are not a regular full time employee for you. Along with this you must make sure you are not doing things that might send a mixed message. Do you do any of what is listed below?

Does the person you are hiring carry the liability for all of their expenses?

You want all of the risk to be on the part of the independent contractor. That is the way these relationships are supposed to work. If you are paying for anything having to do with the work they are performing then you are assuming some of the risk. This would put you in the category of employer rather than someone hiring out independent assignments. The person you were paying expenses for could also demand that you keep paying them.

Do you use the independent contractor on a regular basis, even going as far as to send them checks regularly?

Independent contractors work for many different people. If they did not have several clients most of the time it would be hard for them to get by. I am sure you have heard of the term “anchor client” whenever someone calls you this please correct them. An anchor client is a term used in the freelance world to describe someone who orders large amounts of work on a regular basis.

It suggests dependency and if this is the case it is the type of relationship then it is too similar to an employer employee relationship. You can use an independent contractors services regularly; you just need to make sure you keep track of what you are paying them in order to make sure it is classified correctly when it comes to paying taxes.

What can happen to you if you misclassify someone?

If you end up misclassifying someone as an independent contractor rather than employee, you could end up owing a lot of money to the IRS. You can owe this money even if the person you hired has already paid certain taxes on their income.

You could end up being responsible for various benefits, a lot of which can go way back. You can also have any number of different fines imposed on you by good old uncle same. Getting sued by the person you hired is also a possibility, and if this is the case you might have to pay for their legal fees if they are successful. This is why an independent contractor’s agreement alone is not enough. You must make it clear that they are an independent contractor and not an employee.

The IRS is not going to be sympathetic if you end up having to pay them extra taxes and other penalties. That is why you must make sure that along with an independent contractor agreement, you never do anything that suggest an employer employee relationship.

An indepenendent contractor agreement will not save you if the contractor has been improperly classified.

Are you thinking about hiring out creative work to an independent contractor? If you are then it is going to be crucial that you have an independent contractor agreement created in order to protect yourself.

The importance of making sure you own the rights to creative work with an Independent Contractor Agreement

One of the most important causes when it comes to hiring an independent contractor and having them sign an independent contractor agreement is ownership. There are various companies who hire out work to independent contractors. A lot of the time it is for the sole purpose of having creative work done. This creative work can revolve around the following:

Having books written

Having a company logo created

Creating graphics and artwork

Writing articles about various topics

Do not think you automatically own these creative works

Simply because you have had someone sign an independent contractor agreement does not mean you will automatically own any creative work they make for you. I know it does not make sense at first, because you might assume that having paid for the work you now have exclusive rights to it.

If they were full time employees of yours this would be the case, because it is automatically assumed. With an independent contractor though, they can maintain ownership of the intellectual property.

Making sure you have the copyright transferred to you

Whenever you hire an independent contractor to create work for you that can be deemed intellectual property, it is going to be imperative that you get them to transfer full right over to you. If you do not get this in writing you will not be able to do certain things with the work you receive, such as the following:

You will not be able to use the work as you want

You will not be able to distribute the work as you want

You will only be able to use it in certain places

You will not be able to use the work to generate revenue, even though you paid for it

The importance of clauses will be further discussed in part 2 of the installment.

In the last installment we left off talking about the importance of clauses in an independent contractor agreement, and what some of the consequences would be if you did not make sure that full rights of creative work was transferred to you. Here is a quick rundown of what some of those consequences were.

You will not be able to use the work as you want

You will not be able to distribute the work as you want

You will only be able to use it in certain places

You will not be able to use the work to generate revenue, even though you paid for it

This is why you must make sure that the independent contractor agreement has a clause of copyright transfer is written in the independent contractor agreement you have someone sign. Only a written agreement is able to clear up the confusion that can be caused. With an independent contractor agreement certain types of works will be deemed “work for hire” and you should maintain all copyrights to the work. With certain types of intellectual property, you might have to make a separate independent contractor agreement.

What exactly does it mean to have someone create work for you deemed “work for hire” under an independent contractor agreement?

When you have decided to pay an independent contractor to create work for hire, you are by law considered to be the owner of that property. What this means is you should be entitled to all of the copyrights having to do with that work. The independent contractor agreement you have drawn up should clearly emphasize this. If it is not clear then you may end up having limited to no rights at all.

What types of creative works can be put under the work for hire category just for reference?

There are several types of works you can have put under this category. Articles would be one of them, but it can be any type of written material that has the potential to generate revenue or be used on a broad scale. Articles, reports, graphics, logos, books, sales pages, software, and even instructional text can all be put under the work for hire category.

What do you do if you want an independent contractor to create work that is not “work for hire”?

Sometimes the work you are going to be hiring out will not fall under the work for hire category. If this is the cases then you will not own the rights to it. When the work you want created does not fall into this category you are dealing with a written assignment. A written assignment requires the independent contractor to transfer the copyrights over to you.

They must agree not to use the work after they have done this otherwise you can take legal action against them. It also works in reverse, with the independent contractor being able to take legal action if you use their work for purposes they did not specify in the agreement.

Hiring out creative work to independent contractors who have the skills to provide what you need is a good thing. You can save a lot of time and you can save a lot of money. However, you also need to make sure you are saving yourself from a world of headaches. Getting an independent contractor agreement and making sure that various clauses have been written in it will save you a lot of trouble.

You must make sure you are free to do with the work as you want and that you are free of any possible penalties. Understanding what “work for hire” means and if what you want to have created falls under that category is also crucial. As mentioned before, if it does not fall under this category then it is a written assignment, and the IC must relinquish rights in writing. With work for hire ownership is automatic and protected by law.