Is Hiring An Outside Contractor Different Than Hiring Other Employees?

Outsourcing some aspects of your business to outside contractors can be a smart way to grow your business without all the added complications that come with sourcing, hiring, training, equipping and managing new employees.

But many small businesses make some mistakes when hiring contractors.

For some, the problem is that they misunderstand the legal differences between contractors and employees, and this can lead them into all sorts of trouble with the Internal Revenue Service (IRS).

Hiring Contractors Vs Hiring Employees

It’s very important that you do not treat contractors like they are your employees. This begins with the hiring process. Unlike employees, contractors are responsible for filing and paying their own taxes and should never be given a Form W-2. Give them Form 1099 if they are expected to be earning more than $600 from your company within the current tax year.

Also, contractors cannot be required to work a specific schedule or to work at your place of business. They should not be directly supervised by your company, nor should they be trained by your company or be given your company’s business cards, uniforms, supplies or equipment that they can purchase on their own.

For more information about how to avoid misclassifying employees as contractors, visit the Small Business Administration (SBA) website.

Once you understand those differences and are ready to move forward with an outside contractor, there’s still the matter of making a good hiring decision.

Below are some hiring tips to help you find a contractor that will be a good fit for your company, as well as some things to help you avoid hiring contractors who are likely to do your business more harm than good.

Follow Up With References Prior To Hiring Contractors

One of the best starting points for evaluating the quality and trustworthiness of any outside contractor is to look at the reviews available online and then to contact past clients to ask about their experience working with the contractor.

When looking at online reviews – whether reviews on Yelp, Google, Facebook or any other platform – understand that it’s possible that some of the positive and negative reviews may be fake ones that the contractor or a marketing agency bought to boost their public image. A half-dozen 5-star reviews might raise a red-flag, but a solid 4-star rating with dozens or even hundreds of reviews can help you feel a lot more confident in their work.

Many companies drop the ball when it comes to reaching out to past client references, and this can be a costly mistake. Take the time to contact those clients and see if they’d be willing to vouch for the contractor’s competence and results.

Ask To See A Current Project

One of the most common potential problems you can face when hiring contractors is that the quality of the work they produce might not meet your expectations, which can create additional operating costs, missed deadlines and dissatisfied customers.

It might not be an easy thing to set up, but if a contractor has a current client that is willing to let you take a tour in order to assess the quality of their work, that can be a golden opportunity.

This might not be practical in all industries, but it’s worth looking into if it can give you a tangible understanding of the contractor’s abilities.

Avoid Contractors Who Disparage Previous Clients Or Competitors

This is an important hiring tip for both outside contractors and employees. You have work that needs to get done, and the last thing you want to deal with is someone who creates drama wherever they go and could end up stabbing you in the back down the road.

Avoid these types of people like the plague, no matter how competent they seem or what kind of glowing references they are presenting to you.

Create A Detailed Independent Contractor Agreement Up Front

When hiring a new contractor, it’s very important to protect yourself from misclassification – as noted above – but it’s also important to make sure that you don’t get yourself locked into a long-term relationship with a contractor who is constantly missing deadlines, going over budget or completing low-quality work. All of these are dangers that can be minimized by laying out a detailed contract before any work begins.

Since contractors are not employees and cannot be micromanaged like employees, it’s important to focus on the right things in the contract. Focus on the specific results that the contractor needs to produce, the timeframe in which those outcomes must be achieved and provisions for termination of the contract should those outcomes and timeframes not be met.

Hire An Incorporated Contractor

One of the best ways to avoid employee misclassification – and to avoid getting stuck with amateurs – is to simply hire an incorporated contractor as opposed to a sole proprietor. A corporation a kind of legal buffer between your company and the worker that sends a clear message that this person works for a separate entity and not for your company. And since incorporating is a relatively difficult and expensive process – compared to simply starting a sole proprietorship – there’s a good chance that the people who end up doing the work are more serious about the business and are more likely to perform in a professional manner.

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