Independent contractors can save you money, time, and stress when it comes to completing special projects. However, hiring one can also lead to certain HR pitfalls if you’re not prepared. Here are a few ways you can avoid problems when hiring an independent contractor.
- Adjust Your Expectations
Above all else, know that contractors are not the same as regular employees.That means they’re not subject to the same company rules. Be aware of the differences between the two and adjust your expectations as needed.
For example, contractors generally set their own hours. For this reason, it’s best to come to an understanding of when you can contact them for work matters. Just because they’re independent doesn’t mean they’re available at any hour of the day or night, or even during your typical 9-to-5 office hours. If you need to contact them at times they usually aren’t available, talk with them beforehand and try to work out an arrangement that works for both of you.
There’s usually less room for flexibility when it comes to project details for contractors versus regular employees. A good arrangement will have specific start/end dates and payment terms in place, but also a protocol if things go off-schedule or off-budget. However, contractors aren’t usually subject to regular company policies.That means you’ll have to lay down new ground rules rather than handing them an employee manual.
- Don’t Misclassify Employees
The single biggest HR issue that can arise from having both regular employees and independent contractors is misclassification. That is to say, reporting someone as a 1099 contractor when they’re actually more akin to a regular employee.
Sometimes companies do this on purpose as a way to avoid income taxes. But misclassifying employees is a serious mistake. Aside from being highly unethical, deliberate misclassification can lead to severe legal and financial penalties.
If you’re wondering about the differences between regular employees and independent contractors, the IRS has detailed several key factors. They include:
- The extent of behavioral control – referring to details like work hours, work environment (if the work doesn’t need to be done in a specific place, like a construction site), and ultimately how a worker performs their work.
- The degree of financial control – including factors like who pays for equipment and related business expenses. Also how a worker is paid (hourly/yearly versus a flat fee).
- The type of relationship – which encompasses any written agreements, any additional benefits you may provide for a worker (like health insurance), and details like length of the working relationship.
Generally, independent contractors pay for their own tools and equipment, handle their own insurances, and can take sick leave or vacation time at their own discretion. They’re usually free to seek out work with multiple companies at the same time. They also tend to provide their services for a set time period.
But, as the IRS mentions, sometimes relationships between a company and a worker can’t be clearly defined as one or another – there’s no special formula or specific set of criteria to determine if a worker is an employee or contractor. Ultimately, it’s left to employers to carefully evaluate the situation and use their best judgment.
- Make Sure They Have Proper Licenses
Licenses represent more than just a legal document contractors possess. They’re a guarantee that a person has the appropriate training and technical skills needed to do a job well and are familiar with things like safety regulations.
Generally, employers can face heavy fines if found hiring unlicensed contractors. Not to mention, any in-progress projects will be halted until a suitable contractor can be hired.
Different states have different requirements when it comes to particular licenses and certifications needed by contractors. Industries that usually require special licenses include:
- Electrical work
- Commercial and residential construction
The Contractor Training Center has more info on their website about the types of different contracting licenses and the laws surrounding them, as well as how independent contractors in Georgia can obtain them via exam. Unlicensed contractors may be cheaper, but they can become an HR and legal nightmare in the end.