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Managing an Independent Contractor

Smart tips on what to do--and what not to do--when it comes to hiring and managing contract employees
September 12, 2006
URL: http://www.entrepreneur.com/article/166668

When it comes to hiring staff for your business, you probably most often consider bringing full-time employees on board. But there are certain tasks and positions that might best be filled by an independent contractor, such as one-time or intermittant projects, graphic design, copywriting, research and development, and accounting. And while most business owners understand that independent contractors can't be treated like employees, you may not know exactly what the differences are. So let me spell it out for you with a few questions and answers that explain just what can be required of any independent contractors you hire and that offer tips on how best to manage them.

What is an independent contractor and why should you hire one? An independent contractor is an individual who's self-employed or hired by an outside organization to work in another (that is, your) organization. This subcontractor is paid by you for work performed according to your specifications. The original contractor will bill you for the services of the subcontractors.

If the contractor is completely independent, then you'll pay this individual directly. This individual must work according to the policies, principles, procedures and culture of your business. The length of service may be time limited, meaning that you hire them for a specific, finite project, or may be ongoing. Usually, the independent contractor doesn't receive fringe benefits from the hiring organization.

Why should you hire an independent contractor? There are basically two good reasons to hire an independent contractor. The most common is that your business doesn't have the needed expertise in-house to complete a task or project. Also, hiring someone through a third party usually ensures that the worker's been screened and is competent and experienced. If, for whatever reason, the worker's productivity is unacceptable, the person can easily be replaced by a more acceptable individual without too much trouble.

Another reason to take on an independent contractor is when an "extra hand" is needed. If you only need someone for a task that's time or project limited, when the task is complete, it's quite easy to end the working relationship and avoid any legal complications associated with termination.

Will independent contractors work as hard as my own employees? The answer here is, "It depends." Generally speaking, the notion that you get "an honest day's work for an honest day's pay" remains true. The hiring company expects the employee to work diligently, get the task done on time and under budget while working well with other employees. On the other hand, the independent contractor expects the employer to be available to answer questions, offer appropriate direction, provide an appropriate working climate, and to pay promptly.

This concept is called the psychological contract. If the independent contractor is hired because they have a certain expertise your regular employees don't have, then the former can easily earn the admiration of the latter. In this case, the independent contractor will usually continue to shine so as to receive ongoing approval. After all, recognition is a prime motivator for most people. This achievement may even lead to an extension of the working contract, which will benefit everyone involved.

However, there are other factors to consider, especially when trying to understand why the independent contractor may not work out as expected. One factor is complacency. This would occur, for instance, if the independent contractor falsely believes that their job skills are so highly valued by you that they don't have to put forth a strong effort and that they'll could only be fired for committing a flagrant error. The result is that while the work output might be acceptable, it wouldn't be optimal.

Another issue that might lead to complacency is the fact that the employment is time-limited. The independent contractor may work diligently in the beginning, but as time goes by, their work product may falter. If their employment is for a specific period of time, the contractor may rightly assume that once the task is at least halfway complete, you won't pull the plug on the contract and terminate the contractor.

Another factor that can lead to decreased productivity is a lack of commitment on the part of the independent contractor. If the job is time-limited, this employee might assume that "doing just enough to get by" will not cause any negative ramifications. And to some extent, that's probably true. You may find it difficult to terminate a contractor who accomplishes only part of--or even most of--a task (but not enough to be considered an optimal worker). This is especially true if the project has a deadline. The contractor can easily figure out that even if their work is just okay or perhaps even sub-par, there's no time for you to terminate them and hire someone new to finish the task.

What can you legally require of an independent contractor? Even though they may not officially be one of your employees, this individual still owes you a high level of performance that should equal, if not exceed, the standards you set for your own employees. After all, this individual is still working to receive a paycheck. It's not uncommon for entrepreneurs to want to give these subcontractors "special treatment" out of fear that if they don't like the job, they'll leave.

While it's true they have the freedom to more easily leave your employ, that doesn't mean you should treat them with kid gloves. Doing so has two negative effects: It lets the contractor feel they're special and could potentially get away with doing inferior work. Second, giving them preferential treatment could make your regular employees jealous, and that could produce some very negative emotions that can backfire and result in hostility, decreased morale, and decreased productivity for all involved.

Exactly how should I manage an independent contractor? There are some things you should do that are similar to how you manage your other employees and some things that are different.

Things that are similar:

Things that are different: