How to Manage Contractors: A Guide for Employers

Hiring contractors offers companies an exciting opportunity to expand their talent pools into new countries. Contractors often find they have more flexibility and freedom in terms of how, where, and when they work—it’s a win-win for everyone.

When hiring and managing collaborators globally, there are several reasons why using a contractor could be more advantageous. They could include any and all of the following:

• You’re only hiring for a fixed term project/business need.
• You could be hiring for a specific skill set or industry knowledge that doesn’t justify a full-time employee yet.
• It’s more cost-effective for your business at the moment.

But these advantages come with their own risks, particularly legal risks surrounding worker classification.  With many countries around the world tightening their employment laws around the correct classification of contractors, the risks of misclassification are becoming greater.

Tax risks. Financial penalties. Reputational damage. Potential lawsuits from contractors/ employees affected.

These risks mean it’s never been more important for organisations to establish a firm understanding of the laws governing workers and contractors, the factors used to determine contractors' classification, and the potential consequences of misclassifying their workers.

Contractor Management Best Practices

When hiring and managing contractors, it’s critical to consider the legal and organisational implications behind each hire. While hiring contractors may deliver benefits in terms of cost savings and flexibility for your business, you’re only going to successfully integrate contractors into your wider workforce with clear communication and systematic assessments.

Establishing Clear Expectations and Agreements

When conducting contractor onboarding, companies need to ensure their intentions are clearly communicated and aligned with the contractor's expectations. Because contractors have control over where and for whom they work, any day-one documents or contracts need to clearly lay out the working arrangement.

For example, in the UK, all employers are required to provide employees with a principal statement on the first day of their employment. It documents information important to the worker about the employer and their relationship to them, and it details expectations and requirements in an accessible manner. Similar documentation could be prepared and provided to every independent contractor, with the caveat of fewer strict responsibilities as they are not full-time employees.

Monitoring Contractor Performance and Deliverables

One key difference between a remote contractor and an employee is that, in most cases, companies are not able to exert the same amount of control and oversight over the worker as they complete projects. This is because doing so might qualify the workers as employees (more on this below).

The practical implication is that traditional employee monitoring and review don’t apply in the same ways in contractor arrangements—performance is often measured at the project level.

Four key approaches for overall contractor management monitoring include:

• Constantly compare trends across the talent pools in which your company operates

• Contractor onboarding monitoring, including background checks and skills testing

• Real-time status updates of projects accepted, in-progress, and completed

• Cost breakdowns per project, including additional or unexpected expenses

Instead of assessing individual contractors, the best approach is assessing the roster holistically.

Tools and Resources for Effective Contractor Management

Companies looking to expand their workforce with multiple contractors should leverage every tool at their disposal for sourcing and managing talent.

Regardless of the context, it’s important to prioritise two factors: overall global contractor management (alongside or separate from other workers) and contractor compliance documentation.

Contractor and Project Management Software

Contractor management platforms make all information about current and prospective contractors accessible and actionable at a glance, minimising costly oversights and misclassifications alongside routine payroll and other administrative functions.

Some of the ways a third-party contractor management platform can benefit your organisation include:

• Enabling you to manage your employees and contractors in one place, ensuring better oversight of your whole global workforce
• Giving you access to resources and templates that make it easier to design compliant contracts
• Making it easier to onboard and verify your contractors
• Simplifying payment and invoice generation

Alternatively, companies can also utilise project management software to visualise contractor relationships on a project-by-project basis. In these models, contractors’ deliverables are a stand-in for the workers themselves. Analysing individual contractors’ outputs over time is more challenging in this granular approach, as is comparing against other contractors, employees, and other contributors. However, these frictions may be offset by lower overall resource costs.

Documentation and Compliance Solutions

We’ve already discussed why it’s so crucial for your business to align with labour laws regarding worker classification.

This is especially important when outsourcing globally, as different countries’ laws may classify workers and contractors in different ways. A worker who qualifies as a contractor in one context may need to be classed and treated as an employee in another, with different pay requirements.

Employee misclassification penalties can also be extremely severe in some cases. For example:

• What’s called “Sham contracting” in Australia can result in fines of up to AU$93,900.

• Abusing the “Švarc system” in the Czech Republic can result in fines of 10,000,000 Kč.

• Using “falsos autónomos” in Spain can result in imprisonment of up to 6 years.

Unfortunately, contractor classification isn’t black and white. Sometimes exact classification can be a matter of a legal court assessment.

When it comes to drawing up compliant contracts, it’s worth trying to draw up a template that makes it easier to adapt any contract to local worker classification laws. While no contract template is a substitute for proper legal advice, they can make it easier for your HR team to stay aligned with regulatory environments in different countries.

For example, Omnipresent lets you use a customisable contract template, which helps you to adapt your agreement and minimise your misclassification risk.