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 Pennsylvania, a consulting agreement is a legally binding contract between a client and a consultant, where the consultant agrees to provide professional services in exchange for payment. This type of agreement is important for establishing the consultant as an independent contractor rather than an employee, which has significant tax implications under the Internal Revenue Code (26 U.S.C. §3509). The client is not responsible for withholding taxes or paying FICA taxes for an independent contractor. A well-drafted consulting agreement in PA should be in writing and typically includes key terms such as the nature of the working relationship, scope of services, duration of the agreement, payment terms, and other provisions related to representations and warranties, liability, intellectual property rights, confidentiality, non-solicitation, dispute resolution, and modification of the agreement. These agreements are crucial for clarity and protection of both parties' interests and can be used when the consultant operates as a sole proprietor, single-member LLC, corporation, or multi-member LLC.