So, you’ve got an important initiative coming up and you need some extra support. Maybe you require specialist knowledge to fill a skills gap or just need more coordination help to get a project off the ground. Either way, you want to hire an independent contractor as opposed to a permanent employee.
Independent contractors can be a smart way to access skills, industry experience, and technological capability. Because they’re self-employed, they can often work around your business’ schedule, requirements, and resources—often with lower overheads.
But there are also some key differences when hiring an independent contractor, an employee, or even working with a staffing agency. So keep these top tips in mind when you’re thinking of hiring an independent contractor for your next project.
Be aware of the legal requirements
To start, you need to be sure that you fully understand what it means to hire an independent contractor.
Accurately define an independent contractor
Before you hire a contractor, it’s important you understand how an independent contractor is defined in you state and federal laws.
In general, independent contractors are workers who offer their services as non-employees on a project or fixed-term basis. They have a set job and no obligations outside of this engagement. But it’s best to check the exact definition in your region with a local expert.
Avoid misclassifying employees
Up to 30% of employers have misclassified at least one worker. And the most common form of misclassification is wrongfully defining a full-time employee as an independent contractor.
If you classify an employee as an independent contractor without a solid basis, then you may be penalized. Misclassification penalties can be severe, ranging from tax violation fines to federal law violations, and even jail time—on top of damaging your business’s reputation.
Do your due diligence
Before you go ahead and hire an independent contractor, you need to do your homework. Proper due diligence will help you decide whether your chosen contractor is a good fit for your business and limit the possibility that you’ll have a bad experience.
Set your criteria and establish clear processes
To start, you need to outline your hiring criteria.
- What’s the scope of the project?
- What skills am I looking for?
- How long do I expect the engagement to take?
These questions will help you establish the attributes and selection criteria you’ll want in a potential contractor.
Once you know what you’re looking for, you should clearly communicate your hiring process to your candidates. If everyone knows what to expect upfront, you’re more likely to attract people that actually fit the job.
The questions you need to ask potential contractors
It’s best practice to vet your contractors before you do business with them. Here are six key questions that you need to ask before hiring:
- What’s your experience working on similar projects?
- What is the timescale for this project and can you give an estimated completion time?
- Can you provide a warranty to cover services and materials?
- What accreditations and qualifications do you have?
- Are you fully licensed and insured?
- Can you provide references and examples of similar work?
Verify they’re a legitimate business
If whoever you’re dealing with is legit, there will be evidence that you can verify.
Look at all the basic details they’ve provided and see if they match up. Check the name they operate under, the address, phone number, social media presence, and any certifications they claim to have—and see if it all adds up.
Next, see if there are any reviews, testimonials, and feedback publicly available. This could be on Google, their official website, or LinkedIn.
Know what paperwork you need
Create a robust contractual agreement
A written agreement is essential when hiring a contractor. A robust contract will protect both you and the contractor from misunderstandings and ensure both parties hold up their end of the deal.
As a starting point, your contract should include:
- Scope of work
- Payment and compensation
- Classification and relationship of both parties
- Ownership of work (which can vary from country to country)
- Confidentiality and data protection clauses
- Termination and notice clauses outlining the duration of the contract
- Governing law clarifying which local laws apply
No contract agreement will fit every contractor, so check in with an employment lawyer to make sure you have a contract that adequately considers local and state-wide labor regulations, protects your business, and gets the relationship off on the right foot.
Make sure you’ve got the right government forms
For US residents, government forms include the IRS W9—which collects basic information like the contractor’s tax information, social security number, or employer identification number (EIN)—and the 1099—which documents the different types of payments made by an individual or a business that typically isn't your employer.
If you’re outside the US, the regulations and forms you need to file might be entirely different—so it’s best to check with a tax expert what the exact rules are for your region and that you’re not inadvertently breaking any laws.
Automate the paperwork process
Once you know what paperwork you need when hiring independent contractors, the next step is to make it as easy as possible for them to fill it out and sign it.
Tools like HelloWorks make form-filling a breeze. You can turn complex PDFs into easy-to-read, mobile forms that guide contractors through the fields that are relevant to them. What’s more, duplicated inputs like name and address can be automatically filled throughout documents, saving contractors time and reducing the chances of errors.
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Onboard independent contractors effectively
Here are some top tips that make onboarding and managing contractors less of a headache.
1. Be specific about the project
To make onboarding a new contractor as smooth as possible, it’s important to share as much information about your project as you can.
So, state who does what upfront and be specific. Outline exactly what you need, what the contractor’s role will be within your business, and the key deliverables and benchmarks they’ll need to hit.
2. Set clear deadlines on both sides
This is a no-brainer. Deadlines keep your projects on track and provide an actionable timescale for your contractors to work to. So, set out clear deadlines right from the start.
If your contractor needs something from you, like system access or additional resources, give them an accurate timeline on when you can deliver. Transparency works on both sides, and if you’re both honest about when a project can be delivered, you’re more likely to stay on track.
3. Get everything in writing—every time
As we’ve mentioned before, a contract protects both parties, so you need to get all agreements in writing—so you’re always covered in case something goes wrong.
Even so, unexpected changes happen and scope creeps. It’s good practice to get all oral promises in writing, too, so if there’s a dispute later on you’re covered.
4. Set clear expectations—and don’t micromanage!
If you set clear expectations at the beginning of your relationship, you can both start on the same page. You need to be clear about what you want, so take the time to draft out exactly what you need and when.
Contractors appreciate autonomy, so give them space to work and try not to micromanage. This is especially true if the contractor is in agreement with you to provide specialized expertise.
With clear expectations from the start, your contractor knows exactly what to deliver—without constantly looking over their shoulder.
Agree how you’ll pay contractors ahead of time
Contractors love nothing more than being paid on time. But paying an independent contractor isn’t the same as paying an employee. Unlike employees, they’re not salaried or on your payroll. They’re self-employed, set their own pay rates, and can sometimes negotiate different payment options and schedules.
So, how are you going to pay them? Well, there are a few options. And by agreeing on it upfront, you avoid late payment penalties and awkward apologies down the line.
ACH transfers or direct deposit transfers are the most common form of payment between employers and contractors.
You can easily set up recurring payments with little more than their bank information. As ACH transfers are paperless, they’re secure and require little effort to set up.
Old-faithful. Checks are a tried and tested way of sending payments. They’re simple, cheap, and require no apps, downloads, or software to fill out and send.
But while they’re incredibly easy, they’re also slow. Once a check is written, it has to be mailed to the recipient and deposited in a nominated bank account, which can take days to clear. Plus, checks aren’t the most secure method of payment and are liable to get misplaced, lost, or stolen.
Still, checks are a cheap, reliable way to pay your contractors. But they’re best reserved for one-off situations instead of recurring payments.
Online payment system
An increasingly popular choice amongst contractors, online payment systems like PayPal or TransferWise are a quick, easy way to receive payment for services.
These systems are popular because they keep your personal bank account separate from the transaction you complete. To pay another user, on PayPal, for example, you simply transfer the funds from your bank account to your PayPal account and its’ sent directly to the recipient’s wallet.
It’s worth noting that using an online payment system is only convenient if the contractor already has a business account set up on your chosen platform. If they don’t, it’s unlikely that they’ll want to go through the hassle of setting one up for a single transaction.
Make agreement easy for you and contractors
Now you’ve got everything you need to hire with confidence. Want an easy way to onboard your new contractors?
Check out Dropbox Sign, an eSignature solution that makes onboarding contractors faster and easier for you and them.
Disclaimer: This information is intended for general informational purposes only. This is not intended to be legal advice and should not be a substitute for professional legal advice. Consult a licensed attorney for legal advice or representation.