What is Contractor?
A contractor is a business or individual hired to perform specific work under a contract, typically on a project basis, distinct from employees in terms of independence, tax treatment, and benefits.
Contractor Management Best Practices
Effective contractor management begins with clear scope definition. Unlike employees who have open-ended responsibilities, contractors should be engaged for specific deliverables, time-bound projects, or clearly defined services. Agreements should specify deliverables, timelines, acceptance criteria, payment terms, intellectual property ownership (ensure all work is ‘work for hire’ with IP assigned to the company), confidentiality obligations, and the absence of employment relationship.
IP assignment is particularly critical when contractors contribute to core product development. Without proper assignment agreements, the contractor may retain IP ownership over code, designs, or other work product, which could complicate future M&A transactions or investor due diligence. Every contractor who creates anything for the company should sign an IP assignment agreement before beginning work. For international contractors, IP assignment must comply with local laws in each jurisdiction.
Contractor Agreements
Well-drafted contractor agreements should address: scope of work and deliverables, payment terms (rate structure, invoicing, payment timing), intellectual property assignment (essential: IP created by contractors does not automatically belong to the engaging company without explicit assignment), confidentiality obligations, non-solicitation provisions, termination rights, and dispute resolution. The IP assignment provision is critical: founders who hire contractors to develop product features should ensure that all such work is assigned to the company at engagement, not after the fact. Diligence in financings and acquisitions frequently uncovers contractor IP gaps that require expensive remediation.
Misclassification risk
Treating employees as independent contractors creates significant legal and financial exposure: back taxes (income tax withholding, payroll taxes, social security), unpaid benefits (health insurance, pension contributions, paid leave) and regulatory penalties. In Türkiye, the Social Security Institution (SGK) and the Ministry of Labour and Social Security carry out classification audits.
Risk allocation in works contracts
Under Turkish law, the commercial weight of a works contract (eser sözleşmesi, Article 470 et seq. of the Turkish Code of Obligations, TBK) lies in how risk is allocated:
- Price type: the choice between a lump sum, unit prices or cost plus profit determines who bears the price risk.
- Time and acceptance: the delay regime is written through penalty clauses, and acceptance and defect notification mechanics through inspection obligations.
- Lump-sum price: adaptation for extraordinary circumstances under Article 480 TBK is a narrow route, which is why price escalation formulas are standard from the outset in inflationary periods.
- Subcontractors: in employment law, the principal employer and the subcontractor are jointly and severally liable, and the arrangement is subject to sham (muvazaa) review under Article 2 of the Labour Law; in the law of obligations, the main contractor is liable for the subcontractor’s fault.
- Security package: final guarantee letters, quality deductions (nefaset kesintisi) and bank guarantees should be designed together with the payment schedule.
Sources. Turkish Code of Obligations No. 6098. Statute links open the official consolidated Turkish texts on mevzuat.gov.tr.