What You Need to Know Before Hiring Independent Contractors

What You Need to Know Before Hiring Independent Contractors
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Entrepreneur; CEO and Co-Founder, ClearCompany
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Talent is available for any and all types of jobs. A February 2016 report from Workmarket found that nearly 27 million people are now a part of the on-demand workforce -- a staggering number that reflects the high demand. Several companies are moving toward hiring on-demand employees; some, in fact, are relying on contractors to actually sustain their business model.

Related: Using an Independent Contractor? You Need a Rock-Solid Contract.

A 2015 report from Deloitte found that 34 percent of U.S. workers are contract employees, and 51 percent of the 3,300 business leaders surveyed said their need for contingent workers will only grow in the next three-to-five years.

With the increasing demand for contractors, employers need to consider several aspects before and after the hiring process:

Before you hire

Advantages. Time and money are the most valuable resources, so when companies find ways to save both, they act. Contract workers, after all, are flexible, allowing companies to fill their talent needs as their needs fluctuate. Why consider the long-term commitment of W-2 employees when a project requires only a few weeks or months of work?

Conveniently, 1099 workers (referring to the tax reporting form for freelancers) can hit the ground running and complete projects quickly in exchange for an agreed-upon compensation rate, which is usually a higher wage per hour or job. However, that premium price pays for convenience: Contractors usually possess the exact skills and training needed to complete the job quickly.

Contractors also require less time and fewer resources for filling out and filing federal paperwork, a major benefit for HR. Companies also don’t have to worry about tracking these workers' hours for overtime pay or investing in a benefits package. Typically, contractors are provided benefits through their staffing agencies or their own providers.

Ultimately, hiring on-demand talent is a great solution for short-term jobs, such as covering employee absences and vacations, filling in for seasonal needs and bridging the gap during staff shortages.

Disadvantages. Given the benefits, employers should also consider the cons to hiring contractors. While they typically don’t need training, there are times when it's needed -- and accompanying considerations. Training, for instance, may raise a red flag and attract an IRS inquiry because training is usually seens as a practice reserved for W-2 employees; a fraud investigation may result.

Morale is another factor that may be negatively impacted. When a contractor feels isolated and unable to receive the kind of support a traditional employer-employee relationship allows, he or she may suffer from low morale. There could be a disconnect when contractors work alongside full-time staff members, knowing that they, the contractors, are not receiving equivalent benefits. Productivity may falter as a result. 

Related: The Ins and Outs of Onboarding Employees and Independent Contractors

If the contractor works remotely, management also loses the ability to oversee operations, making it more difficult to delegate and guide progress. To vet contractors may require research and time, searches for references and the effort of a portfolio review. If organizations need to hire new freelancers on a consistent basis, say, over several months of new projects, vetting may represent a large investment of time.

After You Hire

Ending a contract can be a tricky situation, so it’s important to know the implications of each step and to retain that knowledge for the future.

Streamline the paperwork. When you reach the end of the contract with a contractor, have a process prepared that can be repeated with ease for future temporary hires. Review the original, signed contract to ensure there are no discrepancies about the time of payment, deadlines for completion and ownership of the work product. Doing so can prevent legal issues.

Employ performance evaluations. Such evaluations are great tools for identifying whether or not the company should use the same candidate in future roles or perhaps offer him or her a full-time position if the need is there and the candidate is a good cultural fit.

Related: 3 Factors When Choosing Between a Contractor or Full-Time Employee

If the company is unsatisfied, an advantage with contract workers is that there is no commitment, and the staffing agency can be asked to send a different candidate the next time.

How do you prepare for hiring contractors?

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