As your business grows, you’ll undoubtedly need to get help. More often than not, you’ll use freelancers and contractors before you can afford full-time help. But managing independent contractors entails some special handling.
“It starts with understanding the very real distinction between part-time workers and independent contractors,” notes Dr. David Javitch, CEO of business management consultant Javitch Associates. “An independent contractor is someone who’s not full- or ‘regular’ part-time on your payroll.
Strictly defined, full- or part-timers are your employees, which means that you may be required to offer certain benefits, pay over-time should the circumstance arise, cover them under your workers’ comp policy and follow other employment regulations.
In contrast, an independent contractor is not an employee. While they may cost a bit more, you do not pay for or provide benefits, which can be as high as a third of salary costs, and they work only a specified set of hours.”
The distinction is an important one, as the Internal Revenue Service (IRS) has very clear requirements of contractors. For example, they should, in most circumstances:
- carry their own general liability insurance,
- pay their own taxes,
- charge a flat rate per project,
- carry workers’ comp and general liability insurance for any support staff they hire on your behalf, and
- use their own expertise and/or equipment to complete assignments, generally without your direct supervision.
Beyond that, there is some ambiguity around the way the IRS deals with the classification of independent contractors. According to the agency: “The main factor a business must use in determining how to classify its workers is the degree of control the business has over its worker. The more control the business has over a worker, the more likely it is that the worker is an employee rather than an independent contractor.”
Perhaps the best management tool you have at your disposal when managing contract workers is a written agreement. According to online legal advisor Nolo.com, the law generally doesn’t require you to put anything in writing. An oral contract or agreement is legally binding. But oral agreements can lead to costly misunderstandings because there’s no clear written statement of what the independent contractor’s job parameters, payment terms, length of time on the project and, most importantly, what the two parties will do should a dispute arise.
“You need to be very clear from day one what the scope of work is,” adds Javitch. “In addition to a specific description of the work, an agreement should cover what your corporate standards are, what your expectations are for the quality of work and what you expect in terms of timely delivery. You’re hiring these people for their expertise. If they can’t do what’s expected of them, you should have the right to cancel the contract as quickly as possible.
At one point, for example, we brought in an independent contractor to help with our accounting. This person was allegedly experienced, but, within an hour, we found that he couldn’t handle an Excel spreadsheet. We immediately dismissed the person and didn’t pay for any of his time.”
Beyond the legal mandates are issues around the ways in which independent contractors blend into your corporate culture. “This may not always happen, but there are negatives that are sometimes associated with these workers,” suggests Javitch. “They know they’re independent and they typically have a higher level of expertise in their particular field than an employee they might be working next to. They probably make more money and can sometimes see themselves as special. Part of what you can do before you ever hire anyone is to have them interview with a few other people in your company and help them understand the way your culture works.
A good written agreement can also stress what you expect in terms of behavior on-site. And, remember, it’s ultimately your decision as to whether they stay.” Finally, it is always wise to consult an attorney before signing a contract or when the potential for a legal problem arises.