Today, the use of independent contractors is becoming more and more prevalent. As jobs began to disappear in 2008, unemployed professionals decided to jump into the freelance waters and try their luck. As business try to stay lean, they have substituted a large staff of employees with independent contractors from a variety of industries. The nature of independent contractors involves work done outside the office, which can be difficult to oversee. Today’s post is aimed at giving you tips for how to manage your independent contractors.
Take Time to Hire the Right Person
Many of issues that business owners face when working with independent contractors can be avoided by taking more time during the hiring process. Instead of hiring the first seemingly competent individual you can find, develop a plan that includes your objectives for the work and the ideal candidate you’re looking for. Don’t be afraid to include in the job description very detailed tasks that you are hoping to have accomplished. While you may scare off a few candidates, you’re more likely to bring in higher quality talent the more detailed your job description is. Other important things to include in your job description are preferred education and experience, as well as the minimum qualifications you require of the candidate.
Drafting a thorough job description may also assist you in drafting the independent contractor agreement since you’ll already have a detailed scope of work (for the job description) that you can use in your independent contractor agreement.
Make Clear Your Expectations
You’re independent contractor agreement is perhaps the most important tool you have for laying out your expectations for your independent contractor. Drafting a straightforward agreement allows your new hire to understand his tasks, pay rate, a timeline for when tasks should be completed, and other rights and obligations related to the contractor’s work. This agreement is also important for tax purposes to display both parties’ intent that it is not an employee-employer relationship. You can read more about IRS worker classification here. Or you can visit the IRS website to view guidelines for classifying your workers.
When it comes to the independent contractor agreement, you can be as detailed as you’d like— and we believe the more detail the better in this context. One important clause to include in your independent contractor agreement is that the independent contractor is not an agent of the company. By including this language the contractor will not have the authority to act on behalf of your business. You can avoid hassles in the future if you clearly spell out all rights and obligations for both parties upfront.
Avoiding the Dreaded IRS Misclassification
Unfortunately, it’s not black and white when it comes to classifying your workers as employees or independent contractors. If you fail to manage and document the nature of your relationship with your independent contractors you may fall into the grey area. It’s when you fall into this grey area that the IRS may come calling, and the penalties for misclassifying your workers can be steep.
To avoid having the IRS reclassify your workers and impose penalties you should be aware of some key characteristics of independent contractors. We recently published a guide to defining your employment relationships that details these characteristics.
Generally you can boil these characteristics down to one basic rule— the independent contractor should have a sufficient level of freedom, i.e. the employer (you) determine what the task is, but the contractor is free to decide how to do it. In addition, the contractor should use his or her own tools, equipment, and facilities. All of these details should be included in your independent contractor agreement. You can view the IRS guidelines for classifying your worker here.
Ensuring Quality Work Product
As we noted above, it’s important that the independent contractor has control over how he complete the tasks for you. However, below are three ways you can ensure the contractor is maximizing productivity for your business.
First, make strict deadlines for when tasks must be completed. Such deadlines can include details on the quality of the work to be completed.
Second, schedule weekly or bi-weekly meetings in order to discuss the project and receive updates and feedback from the contractor. These meetings can be as simple as connecting on a phone call every Friday, or requiring the contractor to send a status update at the end of every week. It’s important that you maintain close communication with the contractor in order to hold him or her accountable and ensure they are on task. There are a number of online services that allow you to keep in close contact even though the projects are outside of the office. ooVoo is one of our favorite services to use for staying in touch while out of the office.
Third, budget for additional compensation if the work is completed before the deadline, or if additional tasks are completed that are beyond the minimum scope of work. This is often referred to as the laddered approach— provide a minimum scope of work to be done, but list additional tasks that, if completed, will be compensated in addition to the base pay. Like any worker, independent contractors want to be rewarded for their work. By using this laddered approach you can provide incentive for the contractor to do additional work for your business.
If you have any questions about independent contractors or drafting a custom independent contractor agreement, please contact us or subscribe to our free Q & A service.
