A memorandum of agreement spells out the duties and responsibilities of a subcontractor and the company he's doing work for. The memorandum isn't a legally binding document; instead, it outlines the scope of the work and defines the expectations for both parties. Such a memorandum clarifies the responsibility of each party and reduces miscommunication.
A memorandum of agreement between a subcontractor and a company typically starts by stating the subcontractor is not an employee of the company. This clarifies his position for tax purposes and protects the employer from some liability, such as worker's compensation. Also, this ensures the company isn't required to provide additional benefits to the subcontractor, such as health insurance.
Scope of Work
This is typically the largest section of a memorandum of agreement. It spells out specifically what the subcontractor is being hired to do. If the subcontractor is designing a website for the company, the scope of work will likely spell out what constitutes a finished website, such as number of pages and a working search engine feature. For a catering subcontractor, the scope of work might include the event date, the number of people expected, the type of food requested and how many waiters must be in attendance. This section typically provides information on what happens if expectations are not met. For example, if the catering subcontractor arrives to the event late, her pay may be docked by a certain percentage.
For subcontractors providing creative work, such as newsletter articles, photography services or website design, most agreements include a statement about who owns the finished work. In some cases, the subcontractor will retain ownership rights but allow the company to use the creative piece. This type of agreement is typically cheaper for the company. The benefit of the company owning the finished piece is that the company gets exclusive use of it, and the ability to make changes as often as necessary at no additional cost.
A memorandum of agreement spells out the amount of compensation the subcontractor will receive, as well as how often the subcontractor will get paid. Some subcontractors prefer to get paid when the job is finished, but some prefer weekly stipends. The memorandum usually details the process of how the subcontractor should request additional funds, such as if the price of materials increases during the job or if the company requests additional pieces of work. This clearly spells out expectations to help reduce conflict at the end of the job.