A Subcontracting Agreement defines obligations between a primary contractor and subcontractor for project execution. This playbook examines flow-down provisions, performance guarantees, and dispute management.
Why This Matters: Misclassification can lead to significant tax, liability, and regulatory penalties for both the company and the worker.
Negotiation strategy
If you're the Primary Contractor:
Ensure the contract clearly defines the worker as an independent contractor to avoid misclassification. Include clauses that emphasize the contractor's autonomy and responsibility for taxes and benefits.
If you're the Contractor:
Negotiate for clear terms regarding payment and expenses. Ensure the contract acknowledges your independent status and does not impose employee-like obligations.
Essential elements
1
Independent Contractor Status
Defines worker's independent status.
2
Control and Supervision
Outlines autonomy in work methods.
3
Payment and Expenses
Details payment terms and responsibilities.
Action framework
ACCEPT
Propose edits if the clause lacks clarity on independent status or control.
EDIT
Reject if the clause imposes employee-like obligations.
ADD
Add language if jurisdiction-specific requirements are missing.
PRO TIP
Always consult with a legal expert to ensure compliance with both federal and state-specific worker classification laws.
Example clauses
FAVORABLE
Independent Contractor Status
"The parties acknowledge and agree that the individual is an independent contractor and not an employee of the company. The individual shall have no authority to bind the company in any manner, and the company shall not be responsible for any acts or omissions of the individual. The individual shall be responsible for all taxes, insurance, and benefits related to their services."
NEUTRAL
Control and Supervision
"The individual shall have the sole right to control and direct the means, manner, and method by which the services required by this Agreement will be performed. The company shall not have the right to control or direct the details, means, or methods by which the individual accomplishes the results of the services performed hereunder."
UNFAVORABLE
Employee-Like Obligations
"The individual shall adhere to the company's standard working hours and report daily activities to the company."
Fallbacks
High-Risk Projects
In high-risk projects, ensure the contract includes specific indemnification clauses to protect against potential liabilities.
Jurisdiction-Specific Requirements
If the contract is governed by a specific jurisdiction with unique worker classification laws, ensure compliance with those laws to avoid legal issues.
Short-Term Engagements
For short-term engagements, emphasize clear termination terms and ensure payment for services rendered up to the termination date.
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WEEK 1
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WEEK 2
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WEEK 3
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WEEK 4
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