An independent contractor agreement for software development has one job that matters more than all the others: making sure you own the code you paid for. Under US copyright law, software a freelancer writes for you is usually not "work made for hire," so without a signed assignment clause the contractor can keep the copyright even after you pay every invoice.
Most founders find this out in due diligence, when an investor's lawyer asks for an IP assignment from every person who touched the codebase.
General information only, not legal advice. Have a lawyer review the final version for your state and your contractor's country.
Key Takeaways
- Software built by a contractor is usually not "work made for hire" under 17 U.S.C. 101, so you need an explicit, signed IP assignment.
- Classification depends on control, not on the contract title. The IRS looks at behavioral, financial and relationship factors.
- For US contractors, the 1099-NEC threshold is $2,000 for payments made after December 31, 2025. Foreign contractors give you a W-8BEN instead.
- The 2024 DOL contractor rule is still on the books. DOL proposed rescinding it in February 2026, but no final rule has been published.
Why "Work Made for Hire" Does Not Cover Your Code
The statute gives two routes to work made for hire. The first is work by an employee within the scope of employment. The second is a commissioned work, but only in one of nine listed categories (a contribution to a collective work, part of an audiovisual work, a translation, a compilation, a test, and a few others), and only if both sides sign a written agreement saying so.
Software is not on that list. The Copyright Office's Circular 30 is blunt about it: if a commissioned work fails any of the requirements, "it is not a work made for hire." You want a backup.
That backup is an assignment. Under 17 U.S.C. 204(a), a transfer of copyright is valid only if it is in writing and signed by the owner. So a good agreement says both things: "to the extent this is work made for hire, it is ours; to the extent it is not, the contractor hereby assigns it to us." "Hereby" matters: a promise to assign later is weaker.
The Clauses That Matter in an Independent Contractor Agreement
| Clause | What it should say | Why it matters |
|---|---|---|
| IP assignment | Present assignment ("hereby assigns") of all code, docs and designs created for you, plus a work-for-hire statement as backup | Software usually is not work for hire; without this you may not own it |
| Pre-existing IP | Contractor lists their own libraries and tools; you get a perpetual license to anything they reuse in your product | Stops a later claim that your core module was "theirs all along" |
| Open source | Contractor must disclose copyleft licenses before using them | A GPL dependency in the wrong place is a diligence finding |
| Confidentiality | Covers source, credentials, customer data; survives termination | Contractors often work for several clients at once |
| Scope and deliverables | Describes outcomes, not hours of supervised work | Supports contractor status and gives you a basis to reject bad work |
| Control | Contractor chooses methods, tools and schedule within deadlines | The IRS behavioral test asks who controls how the work is done |
| Payment | Rate, invoice cadence, currency, who pays transfer fees | Avoids disputes with foreign contractors paid in USD |
| Tax forms | W-9 for US persons, W-8BEN for foreign individuals | Needed before the first payment |
| Termination | Notice period, handover of code and credentials, final invoice | The most common real-world dispute |
| Return of access | Repos, cloud keys and accounts revoked and returned on exit | Security, and proof of a clean exit |
| Governing law | Your state; consider how you would enforce abroad | A US judgment is hard to collect in another country |
Classification: The Contract Title Does Not Decide It
Calling someone a contractor does not make them one. The IRS common-law test groups the evidence into three buckets. Behavioral: do you control what the worker does and how they do it? Financial: do you control the business side (expenses, tools, whether they can work for others)? Relationship: are there employee-type benefits, and is the work ongoing and core to your business?
A full-time "contractor" in your standup every morning, on your laptop, working a task list your manager assigns, looks a lot like an employee. Daily reality beats paper.
The Labor Department side is in flux. The 2024 DOL rule took effect in March 2024. Since May 2025, under Field Assistance Bulletin 2025-1, DOL investigators have used the older 2008 guidance instead, while the current Fact Sheet 13 says the 2024 rule still applies in private lawsuits. DOL proposed rescinding it in February 2026, and the comment period closed on April 28, 2026. As of this writing there is no final rule. Check the Federal Register before you rely on either version.
US vs Foreign Contractors
For a US contractor you collect a W-9 and file a 1099-NEC if you pay them $2,000 or more in a year (for payments made after December 31, 2025; it was $600 before).
For a foreign individual working entirely outside the US, the usual form is the W-8BEN. The IRS sources pay for personal services to where the services are performed, so work done abroad is generally foreign-source income. Your accountant should confirm your situation, and our post on W-8BEN vs W-8BEN-E covers which form applies when the contractor bills through a company.
A Concrete Version
Say you're a 12-person seed startup. You hire a senior backend engineer in Colombia as a contractor at $7,000 a month to build your billing service. Six months later you raise a Series A.
With a weak agreement (a one-page SOW, no assignment clause), the investor's counsel flags the billing service. You now need the contractor to sign a retroactive assignment, and they hold the cards. Some sign for free; some ask for $10,000.
With the clauses above, you hand over a signed agreement with a present assignment, a pre-existing IP schedule listing the two open-source libraries they brought, and a W-8BEN on file. Diligence takes ten minutes on that item.
The Honest Counterpoint
A perfect contractor agreement does not fix a relationship that is really employment. If the person works only for you, full time, for years, on your core product, under your manager's direction, the paperwork will not hold up well under scrutiny in the US or in their country. At that point you should look at an employer of record (see contractor vs employer of record), which makes the engineer a real employee in their country with the benefits that come with it.
Staff augmentation solves a different part of the problem. The provider holds the contract with the engineer, the IP assignment comes through the provider's paperwork, and you sign one master agreement instead of one per person. It does not turn an employment relationship into a contractor one. At Ruzora the engineers are independent contractors, we carry the reclassification risk as long as your oversight stays on deliverables rather than daily methods, and if you need employment-grade protections for the engineer, an EOR is the right product. Our staff augmentation agreement template shows what that contract looks like, and staff augmentation vs independent contractor compares the two.
Frequently Asked Questions
Does an independent contractor own the code they write?
Usually yes, unless they sign a written assignment. Software is generally not one of the nine commissioned-work categories, so it rarely qualifies as work made for hire when a contractor writes it. A signed "hereby assigns" clause moves ownership to you.
What should a software development contractor agreement include?
At minimum the IP assignment, confidentiality, scope, payment, the right tax form and a termination clause. The table above has the full list.
Do I need to file a 1099 for a foreign contractor?
Generally no 1099-NEC for a foreign individual who works entirely outside the US and gives you a W-8BEN. US contractors paid $2,000 or more in a year (for payments after December 31, 2025) get a 1099-NEC. Confirm with a tax advisor.
The Bottom Line
Treat the IP assignment as the clause you cannot ship without, collect the right tax form before the first payment, and get a lawyer to read the final draft. If managing a contract per engineer sounds like work you would rather not own, a staff augmentation provider can carry it for you.
Request a shortlist to see how a single master agreement covers every engineer.
Roberto Espinoza is CEO of Ruzora, which helps US startups hire pre-vetted senior LATAM engineers, with a vetted shortlist in 72 hours. See available engineers.
