An independent contractor agreement—also known as a 1099 agreement or freelance contract—is a contract between a client willing to pay for the performance of services by a contractor (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. An independent contractor agreement should be in writing, and will usually address issues such as the (1) scope of the work (description of the services); (2) terms and length of the project or service; (3) payment details, including fee deposits and billing procedure; and (4) confidentiality, non-solicitation, and dispute resolution clauses.

In South Dakota, as in other states, an independent contractor agreement is a legal document that outlines the terms of a working arrangement between a client and a contractor who is not considered an employee. This distinction is important for tax purposes, as outlined in the Internal Revenue Code (26 U.S.C. §3509), which specifies that clients are not responsible for withholding taxes or paying FICA taxes for independent contractors. In South Dakota, it is advisable for the agreement to be in writing to clearly define the scope of work, duration of the project, payment terms, and other key provisions such as confidentiality and non-solicitation clauses. The written contract helps both parties understand their obligations and reduces the risk of disputes. It is also beneficial for tax and legal purposes, as it provides evidence of the nature of the relationship between the parties. While South Dakota state statutes do not specifically mandate the use of written independent contractor agreements, having such an agreement is considered best practice and can be crucial in the event of an audit or legal challenge regarding the classification of the worker.