Employing a contractor: definition, benefits and how to do it
By Indeed Editorial Team
Published 4 May 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
If you're responsible for developing a team or finding specialists to work on a new project, you may consider hiring contractors. Because contractors work for themselves, employing them is a safe and flexible solution for many companies. Understanding what it's like to work with contractors can help you decide if they can contribute to the team you're building. In this article, we discuss when you might consider employing a contractor, list advantages and disadvantages of doing so and explain what to consider when sourcing them.
What is a contractor?
A contractor, also known as a freelancer, is a self-employed individual who offers their skills or services to companies for a fixed sum. Many contractors work on a project-by-project basis, but it's also common for them to work on an hourly or daily basis. This means that, unlike with a permanent employee, it's possible to hire a contractor for a set number of weeks, days or hours.
Independent contractors work for themselves, which means they're in control of their work schedule and the services that they offer. It also means that they're responsible for paying their own taxes and sourcing their own clients. In some situations, contractors form agencies, where it's easier for them to build and maintain long-term business partnerships with clients and take on larger projects. Although a contractor might work for one client full time on a business-to-business (B2B) basis, most contractors work with multiple clients at the same time.
When to consider employing a contractor
There are some specific situations, in which employing a contractor can be beneficial for a company or a project. These include:
When you want to try out new solutions
If you're responsible for developing a team on behalf of an employer, hiring a contractor before finding a full-time employee may be a good idea. Working with contractors can be especially beneficial if you want to introduce a new role and see if their work benefits the entire team. This strategy can also be helpful to determine how the team dynamic might change if more people join the team on a permanent basis.
When you have a limited budget
Although contractors can charge more per hour or project, hiring a contractor is often more cost-effective than employing someone full-time. You may consider working with a contractor if the project for which you're hiring has a limited budget, which often happens during trial projects or in smaller companies. Saving money through hiring contractors is possible because they pay their own taxes and the employer doesn't include them in the company's employee benefit programme.
When you want a short-term solution
Hiring a contractor can be an effective short-term solution that provides a project with quick access to specific skills. Experienced contractors often have specialised resources that can be ideal for one-time projects. Because hiring freelancers allows you to have a more flexible arrangement, it's not necessary that a company commits to working with them long term.
Advantages of hiring contractors
Self-employed freelancers help companies with their specialised skills and access to advanced technologies. There are many benefits of working with contractors, for example:
No overhead costs: To pay for a contractor's work, it's only necessary that the employer processes an invoice and schedules a transfer to their account. There are no overhead costs similar to those that regular employees generate, including sick pay, pension or other employee benefits.
Ease of termination: When you dismiss an employee, it's necessary to give them a notice, which makes it a long-term process that costs employers more money. Because working with a contractor only requires a B2B contract, there's typically a termination clause that makes it easy for employers to end the contract quickly.
Flexibility: Thanks to working with contractors, employers can quickly react to market changes by reducing their staff or sourcing new freelancers. As a result, they can minimise investment risks and improve their organisational flexibility.
Disadvantages of hiring contractors
To better understand what it's like to hire contractors, it's helpful to review common disadvantages of employing them. These include:
Less control: Because contractors are responsible for maintaining their own standards of work, it's usually difficult or impossible to closely monitor their work. To ensure they do their job well, make sure to offer them proper training and guidance throughout the project.
Little company loyalty: Unlike regular employees, freelancers rarely develop a true sense of loyalty and commitment to a company. Instead, they concentrate on delivering work and moving to the next project.
Short-term business partnership: Many contractors prefer working on short-term projects, as this allows them to charge more per hour and maximise their earning potential. To make sure you have access to their skills in the future, you can create a talent pool and newsletter, through which you can contact contractors when a similar work opportunity comes up in the future.
How to hire a contractor
When you decide to find contractors for a project, it's helpful to learn how to approach sourcing, hiring and managing them. Here are some tips that can help you with that:
1. Use various channels to post about the job
Sourcing contractors can be similar to sourcing full-time employees, but there are some things that make this process distinct. To make sure you reach contractors with the right skills, make sure to post your offer on multiple websites, including at least a few freelancing platforms. It's also helpful to inform the company's current and past employees about the opportunity, as it's possible that they may know someone who's self-employed and has the right skills you're looking for.
2. Ask for proposals and estimates
In the offer you're posting, make sure to ask that contractors interested in the job send you a proposal along with an estimate. In their proposals, contractors often describe specific tools and methods that they use and provide a more in-depth description of their skills and experience. They also demonstrate how they can help your project succeed.
An estimate is a document that outlines services that they can offer you and how much they charge for providing them. It's good to wait with interviewing freelancers until you have at least three estimates, as this allows you to compare their prices and discuss with the employer or project manager what's possible for the project they're working on.
3. Check their portfolio and references
After reviewing proposals and selecting a few contractors to interview, make sure to check their portfolios and references. This allows you to determine if they've worked on similar projects in the past. It also gives you a chance to learn about the companies they've worked with and how those employers assess their skills. If you're hiring a contractor through a freelancing website, most of these platforms have an automated rating system, where previous clients also share their comments about contractors' work.
4. Ask them to sign a contract
Just like with any other employee, securing a contract is a safe way of hiring contractors. It's important that the contract you present them is concise and easy to understand. Some things to include in it are:
a detailed description of the services you want them to provide
an estimated start and end date of the project
a payment schedule, such as weekly, bi-weekly or monthly payments
any applicable guarantees or standards
signatures from both parties
For some companies, a standard practice is to ask their contractors to sign non-disclosure agreements (NDAs) in addition to standard B2B contracts. NDAs, also known as confidentiality agreements, serve as a safety measure for companies, in which freelancers promise not to share any information about the work they're doing for the company or about the company's internal standards and procedures.
5. Encourage them to join the company's communication channel
Staying in contact with contractors is helpful, as it allows you and the project manager to monitor their progress. It also allows them to have access to managers and team leaders in case there's an issue on their side or when they're struggling with completing a task. When all contractors working with the company have access to the same communication channels, it's easier for project managers to share updates with them and help them with onboarding.
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