Independent contractors offer an employer flexibility to meet staffing demands and expertise in areas outside of the employer's business. Like the employers that hire them, independent contractors run their own businesses, set their own schedules, balance conflicting demands and generally work in their own offices without direct supervision. Independent contractors are their own bosses; they are not employees. If an employer manages an independent contractor like an employee, it runs the risk that a governmental agency or a court could reclassify the independent contractors as an employee, resulting in significant financial liabilities.
To manage independent contractors effectively, an employer should set clear expectations about the project's scope, budget and timeline; keep the lines of communication open; and pay independent contractors promptly so that they will want to do business again. An employer should avoid actions that could result in a reclassification of the parties' relationship.
After hiring an independent contractor, an employer should consider following the steps set forth below to manage the independent contractor.
Step 1: Monitor the Independent Contractor's Progress Toward Contractual Goals
The employer should monitor an independent contractor's progress to ensure compliance with contractual terms and deliverables at a level consistent with the employer's quality expectations. That being said, the employer should avoid over-managing the relationship.
For example, the employer should not require that the project be performed in a certain way or that the work be done using specific equipment or tools. The employer should not require specific progress or status reports (e.g., daily or weekly). The employer also should refrain from limiting the independent contractor's ability to delegate tasks to other workers and from requiring that the work be done by a specific individual.
Step 2: Keep Track of Project Deadlines, But Not the Independent Contractor's Hours
Independent contractors do not necessarily work like employees. They may work at scheduled times according to their needs, or they may work all night under the pressure of a deadline. The employer should trust the independent contractor to perform the project and avoid tracking the independent contractor's hours or requiring the independent contractor to work at specific times.
Nevertheless, to ensure that the project is moving forward in a timely manner, the employer should schedule project delivery deadlines and follow up with the independent contractor if they are not met.
Step 3: Maintain Open Communication With the Independent Contractor
The employer should make itself available during the course of the project to answer questions or respond to any concerns. Although routine questions may be handled electronically, the employer should avoid overreliance on email or phone calls. Independent contractors value personal interaction with their clients; face-to-face time may allow the parties to brainstorm ideas about the project or address concerns about the project before they become problems.
When necessary to discuss project demands, the independent contractor and the employer should consider holding meetings, preferably at the independent contractor's offices or another venue. Holding such meetings outside of the employer's workplace reinforces the independent contractor's status as a non-employee.
Step 4: Quickly Address Any Shortcomings in the Project
If the project takes a turn for the worse, the employer should address the issue quickly with the independent contractor, preferably in a face-to-face meeting. However, the employer should avoid attempting to "performance manage" or discipline the independent contractor. Rather, the parties should work to resolve the issue in a mutually satisfactory manner.
Step 5: Hold a Project Wrap-Up Meeting
At the conclusion of the project, the employer should meet with the independent contractor to review the project's successes and any shortcomings. The employer should remind the independent contractor to submit any outstanding invoices and let the independent contractor know when to expect payment.
The employer should ask the independent contractor to confirm his or her contact information and to update the employer periodically regarding the business or any changes in contact information. Then, the employer easily may reach out to the independent contractor if it requires future services.
Step 6: Pay the Independent Contractor Promptly at the Project's Conclusion
Once the project is completed, the employer should pay the independent contractor the fee in accordance with the agreement upon receipt of the contractor's invoice. There is nothing more frustrating to an independent contractor than not being paid on time, and this may cause an independent contractor to think twice about working for the employer in the future.
Step 7: File All Necessary Tax Reporting Forms
The employer must file all appropriate tax reporting forms, typically an IRS Form 1099, for payments made to an independent contractor totaling $600 or more for the year. The payment must be reported to the independent contractor by January 31 of the year following the payment and to the IRS by February 28 of the year following the payment (or by March 31 if the employer files the 1099 electronically).