Companies need to define a holistic contractor management process in order to remain compliant, due to ever evolving legal and tax requirements.
In this article, we’ll review what a contractor management process includes and what is the right tech stack that can support your company.
What is the Contractor Management Lifecycle?
When it comes to managing contractors, there are several individual steps you need to consider and create a process for. Each of these is equally important, and may have its own disparate process, or be handled as part of a holistic strategy for contractor management.
Most companies have a system in place for how they hire full-time employees, whether that’s using recruiters, job boards, or their own internal referral programs. Sourcing for non-employees should be just as structured.
According to McKinsey Research, hiring contract or freelance workers is an important step to address growing talent needs and close today’s skills gaps. But however fast-growing the freelance revolution might be, there is still a lack of a standardized process in place to find the right people for the right positions.
Picking freelancer marketplaces out of thin air and browsing them in the hopes of landing on the right profile can be time consuming and frustrating. Asking your network for recommendations is relying on luck and visibility, (not to mention your peers wanting to share their 5* talent with their friends). And what about that freelancer you worked with a year or so back, what was their name again, and do you think their email address is still the same?
You’ve found the one (or the two, or the three), and you’re ready to get them started on an essential project. But, wait! Legal, HR, IT and Finance have some ‘quick’ questions.
An onboarding process is essential for onboarding, because gaps and blind spots will slow you down in the long run. Of course, you want to get up and running quickly, but if you don’t put a contractor management process in place for onboarding freelance talent and other non-employees, it can become spaghetti junction in no time.
Think about important get started tasks like giving contractors access to the right systems and tools so that they can do their job, especially important if you’ve gone down the staff augmentation route. What about collecting contractors’ bank details so that they can get paid accurately and on time (and according to their preferred payment methods)? Legal stakeholders may also want to complete background checks so that the company isn’t opened up to risk.
Codify everything you need, and create a process so that all non-employees follow the right path.
It’s likely that you have a system for how you manage your employees and their day to day work. Maybe you leave their workload management up to their line managers, and perhaps you have whole-company policies for actions such as performance reviews, salary increases, or budget planning.
Independent contractors won’t always align with these employee-focused processes, which means they need their own. For example, if your favorite freelancer lets you know they are raising their rates, where do you access this additional budget from? If a project changes in scope, how do you communicate workload with your non-payroll workers in a way that is transparent to the rest of the team? In short – how are you planning to manage freelancer activities across the company?
When creating your process for managing non-payroll workers, ask yourself:
- How will budget be managed? It could be by manager, team, department, or project.
- Can we make this faster? Think about advanced approvals to hit the ground running.
- How should work be tracked? Including setting milestones, and signing off on finished tasks.
- What does communication look like? Do emails work, or perhaps you need greater visibility.
- Does the contractor have expectations? You may need to align with their requirements.
It’s everyone’s favorite day of the month – pay day! While the rest of the business might have a red heart circled around the first of the month, or the last Friday of the month, you need a separate process in place for paying non-employees.
Some might love the quick and easy UI of a PayPal transfer, while others could want to limit fees by using Wise, or don’t mind to wait the extra few days to receive a bank transfer. Agencies may need to be paid for all of their workers in bulk, and then handle their payments internally, while long-term consultants could agree to align with your internal payroll terms for employees.
In our global working landscape, you also need to think about currencies and exchange rates, not to mention giving the independent contractors’ themselves visibility over the status of their funds. Handling this in an ad-hoc way leads to errors, missed payments, and unhappy contractors a’plenty.
Throughout every other stage of working with contractors, compliance needs to be front and center. Make sure to think about compliance as you codify and build out your other processes.
- Sourcing: Misclassification is a growing risk as governments increase their oversight of non-payroll employees. Are you hiring compliantly according to your local regulations?
- Onboarding: Getting the right documents and forms signed and delivered on day one means far less headaches at the end of the tax year.
- Management: Will contractors handle data or be given security access? Think about compliantly onboarding and offboarding non-payroll workers as part of your compliance process.
- Payments: In most cases, taxes will be the contractors’ responsibility, but you still need to record and report certain payments, so tracking payments is key.
Remember: A defined contractor management process is important for all non-employees who aren’t covered by your regular HR and payroll processes. You might need to consider adjusting your contractor management for different types of non-employees. For example, you won’t be able to source talent from agencies in the same way as you source independent contractors, or you could need a different approach for onboarding consultants than you take when you choose staff augmentation.
The Right Tech Stack
Working with talented independent contractors at scale is impossible without the right technology. If you’re trying to build contractor management processes with legacy tools, such as spreadsheets and emails, you’re quickly going to come unstuck.
When it comes to building the right tech stack to support contractor management processes, many companies have implemented a Vendor Management Systems decades ago.
Unfortunately, this solution is heavily focused on internal Procurement tasks, and doesn’t support Legal, IT, Finance, HR or Hiring Managers in their roles. Many high-value independent contractors don’t want to work using MSPs or staffing agencies, and so companies need a solution that allows for a direct relationship with their brand.
Instead, when you’re creating processes for contractor management, think about the most future-focused technology which covers as many of the essential parts of the contractor management lifecycle as possible.
A robust Freelancer Management System does just that. It should allow you to quickly and easily source the right talent, compliantly onboard them across different departmental needs, manage their workload alongside your budgetary requirements, and pay them on time and according to their own processes.