The nature of work is changing. Eighty-five percent of the jobs created from 2005–2013 were not traditional employment: the kind in which a full-time employee of one company receives one W-2 form when tax time comes around. Much of that job growth came from small businesses engaging independent contractors or freelancers. In this overview, Laura Zulliger of Payable (Payable.com), an invoicing and business payments company, explains why so many businesses are using contract labor and shares some ideas for managing independent workers.
Why are small businesses increasingly working with contractors?
- They need temporary, project-based help: Companies need extra help with certain projects or during busier times of the year. For example, let’s say you want to hire a public relations expert to help promote a big event but you don’t need a full-time PR person on staff year-round.
- They need an expert: Many contractors are specialists or experts at what they do and require less oversight. Perhaps you need to redesign the company website. You can contract a professional web designer who can finish the job while relying less on your time and other resources.
How-to Tips for Working With Independent Contractors
It’s important to work with contractors for the right reasons. If you hire a contractor and manage them like a full-time employee, then you’re at risk of a fine, or worse. Once you’ve determined that a contractor is the best choice for your business, here are five helpful tips to ensure a positive relationship,
1. Bring contractors on-board in a thorough and consistent manner.
Before beginning work, you need them to fill out a W-9 form, which collects their taxpayer identification number. If they’re not a U.S. citizen, have them complete a W-8Ben form instead. It’s important to gather this information and hold on to it—you’ll need it at the end of year to file a 1099 form for them, and the IRS requires you to have a copy of this information.
2. Agree to the same terms.
Regardless of industry, it’s important to have a written (and signed) contract or work agreement to make sure terms and expectations are aligned in writing. Even if the contractor doesn’t offer one, it’s good to request one that clearly delineates deadlines, work scope, compensation and deliverables.
A good example of a business owner who does this is Kathryn Waller. She has hired and managed independent contractors for over a decade at her luxury travel company, Connoisseurs Tours. For each trip, Kathryn relies on several different independent guides and operators. “For every person we work with, from tour guides to bus drivers, I make sure to have a signed contract. Organizing and tracking that many agreements may seem like a hassle, but if something goes wrong or clients are unhappy—I must have terms in writing.”
3. Keep good records.
As you’re working together, make sure to keep track of all necessary documents like W-9 forms, contracts, invoices or other proof-of-payment (especially if not electronic). If a contractor doesn’t pay their quarterly taxes, the IRS may involve, or even audit, the company that paid them. Keep good records to protect yourself and your business.
4. Provide regular feedback to contractors.
In surveys, many contractors express they want more feedback from the companies they work with. Unlike full-time staff, contractors may receive less guidance and open, ongoing feedback. Providing feedback both during and after the project helps you get better results. It also helps the contactor better develop better skills.
Steve King, a leading researcher of the independent workforce and contributor to SmallBusiness.com, suggests you “regularly revisit the statement of work or contract and be clear about whether they’re hitting their targets. If they’re doing a good job for you, thank them, especially in front of others.”
5. Don’t forget the 1099.
If you paid a contractor more than $600 during the year, then you’ll need to issue a 1099-MISC form to them. The deadline for sending it to contractors is January 31st and the deadline for sending a copy to the IRS is by the end of February.