Many organizations will need to use contractors at one time or another, whether to manage a temporary increase in workload, complete a one-off project, or simply because it is easier to manage fluctuations in workload. Additionally, using contractors is a great way to get highly specialised or skilled people who may otherwise not want to be employed; often, contractors can command a higher salary.
When working with contractors, organizations need to ensure that their contractors are well-organized to be used sensibly and provide value for money to the organization. Additionally, there are many things that need to be considered when working with contractors.
Many organizations choose to use contractors because of the flexibility it offers. If they do not have work available for the contractor, there is no need to provide payment, unlike employees who will be paid irrespective of the amount of work available. However, this flexibility works both ways, and there is no guarantee that a contractor will be available to take on the work. Organizations must therefore have contingency plans or be able to offer additional incentives to individuals.
- Hire appropriate skill
Just because someone is a contractor does not absolve the organization of responsibility. If, for example, an organization contracts someone unqualified for a job and something goes wrong, they can be held responsible for not completing due diligence in the contracting process. There are several incidents where contractor and organization have been deemed jointly responsible to a greater or lesser degree.
- Pay and Tax implications
When paying an employee, an organization payroll or finance department will process their pay and make any deductions as necessary to cover Federal and State Taxes, Social Security, and Medicare, as well as any other deduction applicable to the individual, as well as any voluntary deductions such as a 401K, job-related expenses and so on.
When paying a contractor, the organization pays the gross salary and will need to keep accurate records of the payments made. QuickBooks offers various options for organizations of all sizes to report payments to contractors, notably the 1099-NEC and 1099-MISC forms that can be sent to the IRS either electronically or in hard copy.
- They are not employees
It is important to remember to treat contractors fairly and in line with all state and federal employment laws and legislation, but the bottom line is that a contractor is not an employee. They are not eligible for any employee benefits that an organization may offer.
Employees may avail themselves of a 401K, paid time off, sick leave, health care, and many other discretionary bonuses, which contractors are not eligible for. Contractors will get their benefits from their employer (in the case of a contracted-out services, such as construction or cleaning) or through personal savings and investments (in the case of sole traders).
- Different contracts
Each contractor will have their contract, which will outline the terms and conditions of their attachments. This will vary from contract to contract to suit the needs of the business. Some issues around flexibility may be avoided if the contracting organization sets up a retainer and terms and conditions therein but may negate some of the benefits of the flexible arrangement.
- Motivating and managing contractors
As the organization does not employ the contractors, it can be difficult to establish management chains that work, so it is important to ensure that any contractor is properly vetted and assessed, with get-out clauses if the arrangement is not working. This is particularly true if a contractor is working alongside employees. It is important, however, to remember that they will also need feedback and encouragement and frequent reviews to ensure appropriate delivery of the contract.
Using contractors is popular and cost-efficient when used properly but must be properly managed to be successful.