Don’t Hire an Independent Contractor Without Asking These 4 Questions

As a small to medium-size business owner, you have no doubt struggled to find quality talent for your company at one point or another. Today’s competitive market makes it even more challenging, and there aren’t enough job candidates to fill all the open positions. Which is why, for many, hiring an independent contractor might be an idea worth exploring.

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Hiring independent contractors will open up the talent pool to a more experienced, business-minded group of candidates and will allow you to control costs and overhead as you scale. But if you are new to the concept, there are a few things that you should know before hiring in this manner.

So today I wanted to share with you four things to think about when hiring your first independent contractor.

1. Should You Pay for Results or By the Hour?

For those used to a “traditional” workforce, you are likely familiar with the “by the hour” model of compensation. But for many jobs and projects, paying for results not only helps you take a fixed expense and make it variable, but if your independent contractors work remotely, it builds in a simple control to make sure they are accountable. You can pay them a set amount to complete a specific project; or pay them per sale, per client issue closed, or per event they manage.

If you can’t pay for results, still consider paying a flat fee versus hourly. This eliminates the “overtime” issue and allows you to know exactly what your team costs will be month by month.

2. Are you Paying Them Enough to Cover Their Costs?

Hiring a W-2 employee often comes with certain “perks” like benefits and office supplies and equipment. Since your independent contractor doesn’t have access to these things, you want to make sure to pay them enough so that they can purchase their own benefits, technology, and supplies. They will also be responsible for their own basic overhead, like phone and internet.

In the event that they need “tools” to start up working for you (e.g., a laptop), you might consider giving them a startup bonus. That way they have the money to buy their own equipment.

3. Are They Incorporated?

Not only will this save them several thousand dollars on their taxes if they structure as an S corp or LLC taxed as an S corp (they can pay themselves a reasonable salary and take the rest of what you pay them as a dividend that is not subject to FICA), but it will also greatly reduce your risk of their ever being reclassified as “employees” by the IRS.

4. Did You Get a Contract?

Unlike a W-2 employee, there are certain things that need to happen before onboarding a new independent contractor, mainly getting the relationship in writing. Your contract needs to lay out exactly what they are responsible for, the standards to which that work will be done, and the exact nature of the relationship. You also want to lay out who controls things like phone numbers, fax numbers, and email addresses so that you have access at all times.

In today’s world, this is easy for your I.T. department to set up. The phones and fax numbers can be done through a web-based system or service, and the email accounts will be through your company email server. I also suggest that you make it clear to them that the company will monitor and back up all company email, and that they should use the company email only for company purposes.

With these four tips, you can make sure that your bases are covered when bringing on a new independent contractor for your business.