A consulting agreement—also known as a service agreement, independent contractor agreement, 1099 agreement, or freelance contract—is a contract between a client willing to pay for the performance of consulting services by a consultant (person, sole-proprietor, or single-member LLC) who is willing to perform the services. Under the Internal Revenue Code (26 U.S.C. §3509), an independent contractor is not an employee, and the client hiring an independent contractor is not responsible for tax withholdings and payment of FICA taxes.

A consulting agreement should be in writing, and will usually address issues such as the (1) relationship of the parties (usually independent contractor and not employer/employee or joint venturers); (2) scope of the work (description of the services); (3) terms and length of the project or service; (4) payment details, including fee deposits, hourly rate, and billing procedure; (5) representations and warranties; (6) liability and indemnification; (7) intellectual property ownership and rights; (8) confidentiality; (9) non-solicitation; (10) dispute resolution; (11) rules for changing or modifying the agreement; and (12) non-waiver provision to preserve the right to enforce the agreement.

A consultant may also operate as a corporation or multi-member limited liability company, for example, and the consulting agreement with such an entity will be similar to an agreement with a consultant who is an independent contractor.

In Kentucky, a consulting agreement is a legally binding contract between a client and a consultant, where the consultant agrees to provide services as an independent contractor rather than an employee. This distinction is important for tax purposes, as outlined in the Internal Revenue Code (26 U.S.C. §3509), which exempts the client from withholding taxes and paying FICA taxes for an independent contractor. The agreement should be in writing to clearly establish the terms of the relationship and the scope of work. It should detail the nature of the services to be provided, the duration of the project, payment arrangements, and other key provisions such as representations and warranties, liability, intellectual property rights, confidentiality, non-solicitation, and dispute resolution. The agreement should also outline the process for any modifications and include a non-waiver clause to maintain the enforceability of the contract. While consultants can operate under various business structures, including corporations or multi-member LLCs, the essence of the consulting agreement remains focused on the independent nature of the relationship and the specific services to be rendered.