Independent Contractor Agreement in India

August 17, 2023
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In the first two quarters of 2023, there was a staggering 157% growth in demand for high-skilled gig workers in the IT sector across India. There is a growing demand for Indians in the tech industry globally. 

As Debjani Ghosh, President of Nasscom, was quoted, “The Indian tech sector works with more than 75% of the Fortune 500 companies, most of them headquartered in the United States, and is therefore well equipped to understand and meet the critical skill challenges of the digital age.” 

Hiring independent contractors from India has several advantages, but one must do it right and formalise a proper independent contractor agreement in India. It is essential to know the Indian independent contractor law to ensure local compliance and avoid any legal penalties later. 

This article gives you everything to know about independent contractor agreements in India. 

Who Is An Independent Contractor?

The definition of an independent contractor may differ per the country’s laws. An independent contractor is an individual contracted by a business corporation for a particular project or to provide services for a specific period. They could be self-employed individuals, consultants or freelancers. 

What Is An Independent Contractor Agreement?

An independent contractor agreement is a formal contract that outlines all the working terms of an independent contractor. It encompasses the specific contractual obligations, scope of work, payments and duration of the engagement. 

An independent contractor agreement in India should confirm that the relationship between you and your contractor is not that of an employer and an employee. 

Important Provisions of Independent Contractor Agreement

Important Provisions of Independent Contractor Agreement

The Contract Labor Act 1970 regulates contractor classification in India. A contractor agreement in India should include the following provisions to ensure legal compliance: 

  • Identity of Both Parties: This introductory paragraph details the client company and the contractor. It has both parties’ legal names along with their address proof. 
  • Independent Contractor Status: Specify the service provider as an independent contractor, not employee. The contract should specify that the individual will not be eligible for employee benefits. This clause helps protect both from potential legal issues related to employment status.
  • Scope of Work: Mention all the duties and responsibilities of the contractor. It should give specifics of the work that they will perform. It can also give the number of hours the contractor is expected to work for. The scope of work is vital to decide the payment terms. 
  • Duration: Specify the period for which you are getting the contractor onboard. Is it a project-based appointment or a six-month contract? Some companies may even sign annual contracts with their independent contractors. 
  • Payment Terms: Give details about the compensation, payment method and any additional reimbursements to which the contractor could be entitled. If you pay per hour, milestone or month, clarify all these payment terms. Also, mention any deductions, if applicable. 
  • Intellectual Property Rights (IPR): This consideration clause specifies who has ownership rights over intellectual property assets. This safeguards your company from any infringement or theft of data or similar assets. It clarifies to whom these rights are vested. 

For example, if you hire a software developer to design a code for your business, you must specify who owns the final product. 

  • Termination Clauses: Outline the early termination process and the notice period to serve. When you specify the duration of the contract, it gives an idea of the end date. But, due to some unforeseen circumstances, if you or the contractor wish to terminate before the completion of the project, this clause mentions the terms and consequences. 
  • Confidentiality: Protect the information about your business that is shared during the project. This could include sensitive data, trade secrets or trademarks. 
  • Governing Law: Specify the Indian independent contractor law which will apply to this agreement. 
  • Dispute Resolution: It defines the process of resolving disputes between the two parties. Mediation or arbitration can help the disputing parties to solve without going to court. 
  • Indemnification: It serves to protect against loss of damages due to the contractor’s mistake. The indemnity clause states the contractor will be responsible for any legal claims resulting from their work, unless the employer’s actions have caused it. 

These provisions may differ from one country to another as per the nature of work, job profile and business needs. 

All these provisions are vital to form a legitimate and legally binding agreement between the two parties. A well-defined and provisional agreement becomes the official document of reference in case of any disputes in the future. 

Why Is An Independent Contractor Agreement Necessary?

Here are some reasons why you must always sign an independent contractor agreement when onboarding a new worker from a foreign country: 

1. Ensures Legal Compliance: Indian labour laws can be challenging to understand because they differ in some states. A binding agreement that clarifies all the employment provisions, such as working hours, compensation and available benefits, can ensure you abide by the legal requirements. Local compliance will smoothen your experience of business operations in a new territory. 

2. Prevents Disputes: Legal conflicts between two parties can prove costly regarding money and the company's reputation. A well-worded contract leaves no ambiguity about how disputes will be resolved. 

3. Avoid Misclassification: Companies misclassifying their contractors as employees can face legal consequences. It can even result in the loss of a business licence. A legal contract is supposed to state the individual as a contractor in the beginning clearly. 

How Can Rapid Help With Independent Contractor Agreements in India?

For a smooth hiring experience with independent contractors from India, you can partner with a trusted employer of record who has deep local knowledge and expertise. Rapid, with its 25 years of experience in the Indian market, will ease your search for qualified talent and help you manage the team effortlessly. 

Rapid can help you frame a compliant independent contractor agreement in India that addresses your business needs. You can trust their knowledge of local laws to ensure your remote workers and contractors get the best benefits and suitable compensation packages. Their integrated HR and payroll services offer customisable templates to help you draft such contracts. 

To know more about their services, get in touch here.

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