How to Manage Contractors and Freelancers
By VICKY BROWN
This is not an unusual thought process for business owners. In fact, I have heard it a million times from clients and colleagues.
And while I’m not saying don’t hire independent contractors for your business – I am saying that there are a few, really important things to get squared away first, so you don’t find yourself in a pickle.
First up – well, make sure they really do qualify as an independent contractor.
Technically speaking, an independent contractor is a separate business. Now it may be a business of one, but the official officials, consider it a separate business. So that independent contractor, or business of one, has all the responsibilities of any other business. They have to pay their own taxes, sell their services to more than just you, use their own equipment and expertise – basically not be under your direct control. They are just there to provide a product or service, and how that happens should be up to them.
Now there’s a lot of confusion around independent contractors, and what qualifies as one. Mostly because there are a lot of agencies with fingers in the pie. At the federal level, the Department of Labor has an opinion (and a set of guidelines), and the IRS has an opinion (and another set of guidelines). And then there are various states, and their opinions and guidelines. And while your contractor might meet the guidelines of one, or two, they may not meet the guidelines of the third. And if they miss the guidelines of any one of them, then they won’t qualify as an independent contractor.
So, instead of getting in the weeds of what is and isn’t considered an Independent Contractor – especially in California – I’ll just say take a look at this episode.
It will walk you through the high points of what you need to think about when figuring out if that Social Media Marketing Manager, really will qualify as an independent contractor or not.
And by the way, people always ask me – what’s the worst that can happen if I misclassify a contractor. Well, you’ll be in violation of payroll taxes, workers compensation rules, unemployment insurance rules, minimum wage and/or overtime rules, paid sick leave rules, and a host of other employment laws. So, as you might guess, the fines and penalties can add up quickly.
Alright – so you’ve determined that the independent contractor label fits. What next?
Now, you have to find the right contractor. And you can’t do that, if you’re not clear on what you want done. So take a moment to understand where you have a gap, what you need done, and then do a little investigation work to determine what type of talent could best fill that gap.
Now, you can look at other postings, job descriptions (after all, it might be a regular job for a different company), and don’t forget to talk to people in your network. It can be really helpful to understand what other people have done in your situation.
OK, once you know what you need – how to you find someone to fill that need. Well, there are loads of platforms for talent – some specialize in contractor or gig talent – and some do regular placements but also have a gig section. Platforms like Upwork and Fiverr are more like the first – they almost exclusively have contractor talent advertised. In fact, Upwork touts their integrated payment service. They say it will help you with classification, payments, and staying on top of any labor compliance changes that might impact your contractor’s status. (Side note – I’m not recommending anything here – just telling you what’s on their website).
Also keep in mind that it’s not just the niche platforms that have independent contractors for hire. You can place assignment openings in places like Indeed and LinkedIn too. Now you’ve probably noticed that I keep referring to these as assignments, and assignment openings – vs. jobs or job openings.
That’s because it’s important to avoid any possibility of these folks looking like employees. So, I think consistently using the right language can help.
Alright – you’ve done the ‘finding the right contractor’ thing. What’s next.
The engagement needs a contract. No matter if the assignment is for a day, a week or a month – you really do need to get it all down in writing. That way, there are no misunderstandings.
Now, since it’s an actual agreement, you absolutely should get your labor counsel involved. I know that can sound like a lot – but have them do a template agreement you can reuse. You’ll be glad you did.
In fact, if it’s a savvy independent contractor, they may even have their own agreement for you to review and sign.
Now again, you really should get your counsel involved, and again – I’m not an attorney or giving any type of legal advice. But some of the things I look for in agreements with my contractors are things like:
Who they are and what I expect them to do. Meaning, outlining that they are an independent contractor (and again, just because you say that in the agreement, it doesn’t mean the regulators will automatically confirm the person is an independent contractor. The, as they say ‘facts of the case’ have to support that classification).
What are the scope of services, how long is the engagement period, what are the milestones and or deadlines around the project. And what specific outcomes am I expecting.
Be really clear about these points because they are the backbone of the engagement. After all – it’s all about you and your business getting what you need. That’s the reason for the engagement in the first place.
Then there are what I think of as the technical parts of the agreement. How will they get paid, what triggers payment (is it based on a schedule or deliverables. What about expenses, do you get to approve them first.
“… what happens if that contractor gets sick or is otherwise off the field. If they have a company and employees, then those people will likely be able to fulfil the assignment. But so many times a contractor is one of one. So you may need to have access to more than one to make sure you’ll be covered“
And then we get to the responsibilities sections. The contractor is responsible for their own tax liabilities, they have to have business insurance, I want them to indemnify me and my business, if they use sub contractors or they have their own employees, I want them to confirm that they are adhering to all applicable labor laws. They have to keep my stuff confidential. Who has ownership over what they produce. And, of course, what happens if something goes wrong.
Oh yeah, an attorney needs to draft this for you.
Alright, once all that is squared away – then we get into the day to day process. Decide who will oversee the engagement and the contractor. (Oh, a pro tip here – never have independent contractors manage employees. They aren’t employees and they have no standing to manage one. And besides, if you have someone managing employees, it makes them look even more like an employee – so there’s that.)
Make sure you’ve figured out how communication will flow. Will you use some sort of project management tool (if so, I would suggest Asana). What will be the frequency of communication – is it a check-in thing or more of a progress reports vibe. And again, keep in mind that if you want them to show up at, say, a weekly staff meeting….well, that’s making them look more like an employee than a contractor – so be careful.
You might also consider putting a pool of talent in place. After all, what happens if that contractor gets sick or is otherwise off the field. If they have a company and employees, then those people will likely be able to fulfil the assignment. But so many times a contractor is one of one. So you may need to have access to more than one to make sure you’ll be covered. Or, at least have a few talents waiting in the wings.
Be sure you, or whomever you select to oversee the contractor, gives them clear, specific and timely feedback. That will 10x your chances of a successful engagement. It gives the contractor a chance to change direction or focus, if they need to. Or it might even spur them to suggest an alternate attack to the project. But they can’t leverage their skill and creativity if they don’t know how you’re feeling about how things are going.
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And, with all that – remember to stay in your lane. Keep in mind, they probably have other clients; so you’ve got to respect their time and autonomy. Maybe even set up some clear communication SLAs (that’s service level agreements). Something like, all inquiries will be answered within one business day, or something like that. It seems really corporate and formal, but if you both know what to expect on response time, it takes care of that – you never get back to me – thing that can so easily happen.
Now, I know this seems like a lot, just to hire an independent contractor. After all, your fellow business owners, and maybe even you in the past, have hired contractors simply by having a conversation with them, agreeing to a price, then they start, you pay them, bing, bang, boom – it’s done.
Sure that’s a lot faster, and seems a lot easier. But the difficulty with that approach is that it doesn’t protect you or your company one bit. Just remember to think of it this way – when you engage an independent contractor, you’re stepping into a business to business contractual agreement. Because, as I said earlier in the episode, in the eyes of the regulators, that’s what an independent contractor is – a separate business.
Now, I bet you wouldn’t even think of starting an engagement with a vendor or service provider without making sure the things we just discussed are hammered out first. No, you’re going to make sure all this is locked up before you hire that accounting firm, or law firm. Well, it’s exactly the same when you’re starting with an independent contractor. Remember, they aren’t your employee, so they aren’t part of your company policies etc.
And if something massively goes wrong, it won’t be about you firing them (because you can’t). It’ll be about you taking them to court. And without a good, comprehensive, signed agreement ….. well, I wouldn’t’ want to take my chances without one. Would you?