Managing Independent Contractors

The use of independent contractors in business is on the rise, and if you’re in a position to manage these types of workers, it’s your responsibility to know the rules governing their use. Understanding

the legal differences between contractors and employees, for example, is very important. For information on determing whether a worker should be considered an employee versus an independent contractor, visit the IRS's Web site.

It’s one thing to hire an independent contractor, but it’s something else entirely to effectively manage this special category of worker. Here are some key points to remember:

• Know the difference between an independent contractor and an employee. Familiarize yourself with the 20-factor test, developed by the Internal Revenue Service, to determine the extent of control you have over the individual. Understand, too, that you are an independent contractor’s client. Although your company doesn’t withhold federal, state, and Social Security taxes or pay unemployment or workers’ compensation insurance, it does expect a finished product. If you have questions, consult your Human Resources department. Don’t make your company vulnerable by making incorrect assumptions. For example, if you’ve got two people doing the same job, but one’s classified as an employee and the other as a contractor, then you may have a problem in the eyes of the IRS.
• Develop and maintain specific goals and schedules. The more direction you can give a contractor, the more likely you will be to achieve your management goals. Document clear and specific goals, and provide time frames for projects that include interim check-ins. However, be careful about giving too much direction on how to do the job (see #1 above). Rather, give the contractor the necessary direction to get things done on time without mandating how the work will be done, which could put the independent contractor status at issue. This also will give you a framework from which to evaluate performance and results.
• Hold weekly meetings. E-mails are useful for quick check-ins, but nothing reinforces accountability like old-fashioned face time. Even if your contractor is working off-site, a telephone conference in place of a meeting is essential.
• Check progress periodically. Instead of wondering what your contractors are up to and worrying about the status of a project, you should periodically check on progress. However, be sure to avoid requiring that your contractors provide a weekly report, which the IRS considers to be something employers may ask only of employees. While you want information and accountability from your contractors, you don’t want to risk their independent contractor status.
• Carefully integrate your contractors. Clearly, full- and part-time employees enjoy different benefits than independent contractors. Still, people’s hiring status should not divide the office. In other words, make sure all your workers know that they are valued contributors on one team. Integrate them functionally when you need to. Use caution, however, when including contractors at company events. You don’t want to create a situation in which the contractor’s status begins to move toward that of an employee.
• Communicate with everyone. Your employees enjoy certain benefits not given to contractors, while contractors may seemingly have more freedoms than employees. So, yes, they’re different, but you need everyone to know that the goals are one and the same. Communicate with both groups. If your full-timers seem threatened by the presence of contractors, assuage their worries by talking honestly with them. Explain the benefits that contractors bring to the business, but assure your employees that they should not feel their own permanent jobs are endangered by the presence of contract workers in the office.