How to Manage Contractors: The Complete Guide

In recent years, many companies have realized that they don’t have documented processes or workflows that guide their employees on how to manage contractors.

The main reason is simply that the workforce has changed significantly over the past 4-5 years, but companies have not adapted their workforce management to the new reality.

The workforce has changed due to many unrelated reasons, like remote work, technology advancements, the freelance revolution and new generation getting into the workforce. 

However, all of these changes led to a workforce which rely heavily on independent contractors and freelancers. This is where the world is now. And it’s where it’s heading too. 

The problem is that without properly building a process to manage your independent contractors and freelancers, you won’t be able to work with them efficiently and compliantly.

In this guide, we’ll cover everything you need to know about legal documents, tax compliance, payment processes, onboarding & off-boarding workflows and our own tips to becoming your freelancers’ favorite customer.

This article is part of our guide on independent contractors’ management.

How to build an onboarding process

So now that you’ve hired a freelancer, how do you make sure everything’s seamless, legal, and effective?

This is why it is so important to build an onboarding process for your contractors and freelancers, both internally and externally. 

An internal onboarding process

An internal onboarding process is critical to align with your executive, HR, finance, legal and IT team.

  1. Align on budget, deadline and deliverables with your manager/team

The most important 3 parameters to align on at the beginning on any freelance project, large or small – is the estimated amount, the deadlines and the expected deliverables per deadline. If you’ve got those 3 covered – you’re on the right track.

  1. Sign and Save Legal Documents. 

These are the legal documents we talked about earlier in the course — IP agreements, freelance contracts, and NDAs. 

It’s important you store these documents in a safe, easily-accessible location. You might need them later on — for company due diligence for instance. 

  1. Collect Your Freelancers Payment Info and Share It with Finance. 

This includes their bank account info, payment currency, and preferred payment method. 

Then, share this info with your finance team, so they can easily pay your freelancer when the time comes.

  1. Ask Your IT Team for System Access.

While working with your company, a freelancer might need access to certain company platforms. For instance, a freelance designer might need access to your company Figma account and your design team’s Asana board.

You might want to consider creating a document that explains what systems and tech a freelancer needs access to given their role. 

  1. Review Your Plan with HR and Ask Them to Keep a Record of It.

In most companies, HR teams are not taking an active part in the recruitment and the on-going process of managing contractors and freelancers. This is a shame. 

HR teams are experts when it comes to employee onboarding and training. They are the ones discussing and optimizing the company’s guidelines with finance, legal, and the management team. 

So you should run your plan by them to see if they have any ideas for improvement. And also ensure they document it in their systems. That way, your entire company can follow the same process.

Onboarding process with your contractors and freelancers

Once you’ve established a strong internal onboarding process, you can start thinking about standardizing your external communication with independent contractors and freelancers. 

Here are a few points you should communicate with them: 

  1. Collect Their Contact Information. 

Think email address, billing address, phone number, etc.

  1. Provide Background Information on Your Company and Goals.

With this information, they can more quickly begin their work and understand what they’re working towards.

  1. Define Key Project Milestones. 

Discuss and agree upon milestones, deadlines, and deliverables. Ideally, get this in writing.

  1. Align on payment terms

Freelancers commonly have different preferences when it comes to their payment methods. Some prefer to bill the company after each project or “milestone,” and others opt for a one-invoice-per-month cadence. 

And, as your non-payroll workforce grows, you may be hiring workers who operate in different countries, and subsequently want to be paid in different currencies. 

Aligning on all of this, as well as how quickly payments will be issued, is key to avoiding conflicts.

  1. Establish Communication Expectations. 

How do you want freelancers to communicate with you and your team? Slack? Email? Regular Zoom meetings to check in?

  1. Introduce Freelancers to Key Members of Your Team. 

This includes team members who they’ll need to communicate with to complete their work. Or, team members who might be a helpful resource for them. Or, even members of your team who they can contact if you’re out of office.

Which legal docs do you need to get signed

Have you signed all of your contractors and freelancers on an agreement? What about NDAs, IP agreements and data protection documents?

Many companies skip this step — often. 

Partly, because legal documents can feel overwhelming for you — the company. And partly, because they can overwhelm your freelancer with scary legalese. 

But fear not. We’ll break down exactly what the main legal documents are and why they’re important.

You can also check this independent contractors agreement guide for more details.

Why Are Legal Documents Important?

We all hope legal issues never arise. That relationships with freelancers are always friendly, beneficial, and clear. That small issues can be solved through candid conversations and rational solutions.

But this isn’t always the case. And in those cases, legal documents will protect both you and your freelancer.

The Critical Legal Documents You Need To Be Familiar with

Here are the top four legal documents you always need to consider signing your contractors and freelancers on prior to starting your work together.

  1. Freelance Contract

There’s nothing worse than lawsuits. Just the thought is hair raising. 

Freelance contracts help prevent lawsuits — for both your company and your freelancers.

A freelance contract is a legally binding agreement between your company and your freelancer. It includes the terms and agreements of your work arrangement.

It protects you and your company from future legal claims, miscommunication, changes in scope or compensation, and getting ghosted by your freelancer.

It protects your freelancers too. It ensures they get paid an agreed upon amount within an agreed upon timeframe for agreed upon work.

It’s a win-win. 

And often, it’s illegal to work without one. 

That’s true in many U.S states and countries. Countries created these laws, like New York’s Freelancing isn’t Free Act of 2016 or the Philippines’s freelance protection law, to protect freelancers from exploitation and withheld payment.

What Should You Include in Your Freelance Contract? 

Here’s what we recommend:

  • Contact Details. Like full name, phone numbers, and email addresses — for both your company and your freelancer.
  • Project Scope. This describes the work you’re hiring your freelancer to do. Try to be specific when defining the requested deliverables, timelines, deadlines and amount.
  • Equipment and Expenses. Mention any equipment needed by your freelancer and any expenses incurred by your freelancer while working for your company. 
  • Pricing and Rates. Document how the payment is calculated (fixed, per time, per deliverables) and possible bonuses or extra compensation.
  • Payment Schedule and Options. Explain how and when your freelancer gets paid.
  • Ownership and Copyright. This clarifies who owns the work upon project completion. More on this in a moment …
  • Legal Term definitions. Provide definitions of important legal terms and concepts to ensure both the freelancer and hiring manager understand their legal obligations.
  • Early termination and kill fee. What happens if you need to cancel the project before it’s finished? Explain this in your freelance contract.
  • Dispute Reconciliation. What happens if the contract terms are breached? Explain that too.
  • Signatures. Both a representative from your company and your freelancer need to sign the contract. Otherwise, it’s not valid. 

And finally, just make sure a representative from your company and your freelancer sign all contracts. Otherwise, they won’t be valid.

  1. IP Agreement

Fun fact: you do NOT automatically own the work your freelancer does for your company — even if you pay them for it.

So who does? Your freelancer. And that means they could sue you for using the work you paid them to do.

Crazy, huh?

But there’s a simple way to get ownership of their work —  an IP agreement.

An Intellectual Property (IP) agreement describes the transfer of ownership that takes place once a freelancer turns over work to your company. 

For example, if a designer created a logo for your company, your IP agreement would explain that your freelancer is transferring rights and ownership of the logo to your company. 

Your IP agreement should include:

  • What the intellectual property is
  • Exactly how the IP rights are being transferred
  • The exceptions your company is prepared to offer

(You can learn more on IP agreements here)

  1. NDA

An NDA, or Non-Disclosure Agreement, protects your proprietary company information.

It’s a legally enforceable document that explains that the signee cannot disclose certain information about your company, even once the terms of your arrangement are complete.

It can protect info about your company, like:

  • Your customers’ names and information, including sales data and financial data
  • Marketing and sales leads
  • Your product roadmap
  • Design or implementation processes that show how a product is created or maintained
  • Company data and research

(You can learn more on freelancers’ NDA here)

  1. Data protection 

You might need to give your freelancers access to your employees’ or customers’ data. Unlike employees, freelancers are considered as third parties which constitute ‘processors’ in case they are granted access to sensitive data.

In this case, you must sign your freelancer on a data protection agreement that includes what data they will be accessing under what lawful basis, your expectations around what data they will utilize, and what your own obligations are as the controller or joint controller.

(You can learn more on data protection regulations here)

What about Non-Competes?

Glad you asked. 

First, what is a non-compete? It’s a legal document that attempts to prevent freelancers or full-time employees from working with competitors or similar companies in your industry.

But here’s the skinny: 

They’re almost impossible to enforce legally. Most U.S. states won’t side in favor of your company if a non-compete is breached. 

And many freelancers won’t sign them. We don’t blame them.

After all, freelancers often acquire new clients via referrals. 46% say word of mouth is their top method of finding work

These new clients might work in the same industry. If they signed a non-compete, they limit their ability to land new clients and talk about the work they’ve done for other companies.

However, most freelancers will naturally avoid working with direct competitors, because it’s a conflict of interest.

In any case, your NDA should protect you in the case they do work for a direct competitor. However, your own definition of direct competitors might differ from theirs, so it is important that you name your direct competitors and the period of time you expect they won’t work with them.

One last important note …

You need to carefully archive your freelance contracts, because you will be requested to show them in any basic due diligence. Which leads me to the homework …

What about tax Compliance?

After signing your freelancer on all the relevant legal documents, it’s tax time. We promise – this is simple for companies.

Unlike with a full-time employee, your company doesn’t need to withhold taxes for freelancers.

Freelancers are solely responsible for paying their income, social security, and medicare taxes. This simplifies things for you. And also saves you money. It’s one of the reasons that freelancers cost 30% less than full-time employees.

So zero responsibility on your end, right? Not quite. 

If you pay a freelancer $600 or more in a year, you do need to report what you paid them to the IRS. 

Which tax forms do you need to collect and/or submit?

For US-based freelancers, you must submit  Form 1099-NEC, by January 31st every year per freelancer. For non-US based freelancers, you need to submit Form 1042-S by February 28th.

In order to know whether your freelancers are required to pay taxes to the IRS, you are obligated by law to collect a W9 (for US-based) or W-8 BEN (for foreign citizens) that contains their tax identification details you’ll need to report on the form you’ll submit.

So the process is simple:

  1. Ask your freelancers to complete a W-9/8 when they begin working with you. (This form is valid for 3 years. So set a reminder to ask your freelancer to update it after 3 years.)
  2. Submit a 1099-NEC for each freelancer who you paid $600 or more within a year or 1024-S for non US-based freelancers.

(UK-based company? Follow the IR35 guidelines instead)

What Happens if I’m Late?

The fines can be steep. 

You’ll pay a fine between $50 and $270 per independent freelancer, depending on how late you submit the form. These fines cap at $556,500 in a single year. Yikes. 

And if the IRS suspects you intentionally didn’t submit forms, there’s no max on the penalties they can throw your way. Double yikes.

How Can I Make Sure I’m Never Late?

It’s best to have documented processes in place. We recommend you:

  • Keep a full list of your independent freelancers in one place, noting whether they are US-based or not.
  • Ask freelancers to complete a W-9 or W-8 during their onboarding.
  • Update freelancer tax forms every 3 years — or, better yet, annually.
  • Keep W-8s and W-9s on file for 4 years, even when you pay a freelancer less than $600. That way, if the IRS has questions, you’ve got answers.

You can find additional information on contractors’ taxes on our independent contractors taxes guide.

How to Pay Freelancers

After dealing with legal and tax compliance, let’s talk about money.

Great freelancers are in demand, and they can choose who they want to work for.

And they’ll choose the companies who treat them right.

Jack Kelly says “Hiring managers will need to roll out the red carpet and concede to the demands of those on the job hunt. If companies don’t appease [workers], they’ll go elsewhere, as there will be more opportunities.” 

One of the best ways to “roll out the red carpet” for your freelancers?

Pay them fast in the currency and method of their choice.

40% of gig workers say faster payments is a great reason to choose one company over another. 

And it’s not all about speed. Method matters.

While your company might prefer paper checks, freelancers don’t. 70% of gig workers prefer electronic payments. Yet, 31% of gig workers have been paid via paper check. Only 14% of them wanted it that way. 

And thankfully, finding a simple, fast approach to paying your freelancers isn’t just good for them. It’s good for you and your company too.

It takes a lot of time and effort to pay multiple invoices in different payment methods, terms, currencies, and cycles. That’s why we’re going to break down the different options and show you a few ways to simplify the entire freelance payment process — for both you and your freelancer. 

So let’s talk about your payment options and the pros and cons of each …

  1. Bank Transfers

These include any methods where you send money from your company to a freelancer’s bank account, like:

  • ACH Payments or Direct Deposits: Money is transferred from your company’s bank account into your freelancer’s bank account. You can only use this method if you reside in the same country as your freelancer. On top of that, there are typically fees for using ACH, and it takes a few days for the money to arrive. 
  • Wire Transfers: Wire transfers are similar to ACH payments, but there are a few key differences. Both the recipient and sender pay fees for wire transfers, and they tend to be much higher than ACH fees ($25-$50 per transaction). You can send money internationally via a wire transfer. And wire transfers immediately deliver money to a chosen bank account. 
  • eCheck: While freelancers typically aren’t fans of paper checks, they may appreciate echecks. An eCheck uses ACH to direct funds from your company’s account into the freelancer’s account through a payment processor. They’re fast and secure. Recipients can get the funds on the same day, and the fees are low. 
  • Credit Card: To pay a freelancer via credit card, they must have a merchant account open with your bank, or use a compatible third-party merchant service. Think Square. Payments are immediate and secure, but freelancers may pay fees up to 3% of the payment total. That’s steep compared to other options, which is why many freelancers won’t use this payment method.
  1. Payment Platforms

This includes any method where an intermediary company collects the money and passes it on to your freelancer.

  • PayPal: PayPal is the world’s largest payment platform. It’s secure. Fast. And converts currencies. Freelancers will need to have a PayPal account to receive funds. There are fees for using PayPal, and they vary significantly.
  • Bill.com: Bill.com is a platform that uses AI to extract key information from invoices (such as the freelancer’s name, date, amount due, and payment method), and automatically route it for approval. Freelancers can get paid via ACH, virtual cards, and international wire transfers. Bill.com charges a subscription fee per user, anda percentage of the payment amount depending on payment type.
  • Payoneer: One of the greatest advantages of Payoneer is that it will pay your freelancers in their local currency. This makes it a good choice for companies that work with a globally dispersed, non-payroll workforce. If the freelancer has a Payoneer account, you can transfer their payment to them directly. If they don’t have an account, Payoneer will send a payment to their bank account via a bank transfer. There is a fee of up to 2% when sending payments from your Payoneer balance to bank accounts, in addition to your subscription cost.. 
  • Tipalti: Similar to Payoneer and PayPal, Tipalti is a global payable automation solution. The main difference? It can also automate processes within accounts payable (AP), such as onboarding, invoice processing, and reconciliation. Tipalti’s rates vary significantly based on a variety of parameters, so it may be cheaper for some use cases and expensive for others.
  1. Freelance Management Platforms
  • Stoke: Freelance management platforms, like Stoke, take a load off your shoulders by handling freelancer payments for you. Instead of individually paying each freelancer, Stoke pays all of your freelancers in the click of a button. The best part is that it enables your freelancers to choose how they want to get paid, and their preferred currency. You can also set up approval processes to automate the process as much as possible.  

For more information on contractors’ payment terms, methods, and regulations you can check out our guide on how to pay contractors.

How to Become Your Freelancer’s Bestie

No, we’re not talking about being your freelancer’s best friend.

We’re talking about being their bestie client. 

The client they’ll work with over and over again. The client they’ll clear their schedule for. (Yes, freelancers sometimes do this for their favorite clients.) The client they’ll refer to other freelancers. 

The client they go the extra mile for.

Becoming a bestie client can give your company some nice perks and an awesome working relationship. 

11 Tips to Become a Bestie Client:

  1. Respect Their Work and Knowledge

“Employees want to feel that their opinions matter and that their leaders value their input,” says Annie Eaton.  “It doesn’t make sense to hire someone unless they will add value to your business. Make them feel that every day by giving them responsibility and respecting them enough to step back and do what you hired them to do. When they feel respected, they will respect you in return.”

This is no less true of freelancers, many of whom likely left full-time employment, in part, to escape disrespectful, controlling bosses.

Hire well. Then, you can feel confident giving your freelancer the freedom and room to use their expertise. And do what you hired them to do.

(If you want to learn how to hire well, check out our free bootcamp on hiring great freelancers.)

  1. Share Feedback

While respecting your freelancer is key to building a good relationship with them, that doesn’t mean avoiding constructive feedback when it’s needed.

Constructive feedback, on both sides, is a great way to build a long-term relationship. 

If you don’t communicate constructive feedback, the relationship is unlikely to last long, as you’ll continue to be unhappy with elements of your freelancer’s work.

When sharing your feedback, be honest and open. But kind and respectful. 

  1. Request Feedback

As we just mentioned, feedback is key to a strong, lasting freelance relationship. Feedback allows frustrations to be dealt with and overcome. 

And you’re not the only one who may become frustrated at times. Your freelancer may too.

That’s why you should regularly ask for feedback on your working relationship. It can improve your onboarding processes, communication, and entire freelance management program.

Consider asking for feedback at regular intervals — like the end of a project or at the end of every quarter.

  1. Make Onboarding and Payments Easy

For your freelancer, time is literally money. Wasting their time with a laborious onboarding process or payment process could drive them away from your business. Or, compel them to raise prices.

We’ve covered how to create great onboarding and payment processes in this course. This is one of the reasons those lessons are so vital. 

  1. Pay Them Promptly.

Freelancers often earn inconsistent income. Some months are great. Others might be tight. 

In tight months, your late payment could be the reason they can’t pay their mortgage.

It’s rude. Potentially harmful. And not what a bestie client does.

  1. Respect Their Wish for Flexibility.

46% of freelancers choose their job because of the flexibility.

A good way to lose a freelancer? Limit their flexibility.

Think daily or weekly meetings at rigid times that don’t fit their schedule. Or, asking them to hop on “a quick call” whenever you have a question. Or, expecting them to immediately answer your Slack messages or emails.

These aren’t good practices for your full-time employees. And they certainly aren’t good practices for freedom-loving freelancers.

  1. Invite Them to Team Activities, Groups, and Events.

At Stoke, we recommend treating your freelancers as an extension of your full-time team.

A simple way to do this?

Invite your freelancers to fun team activities and events. Invite them into your Slack groups and team meetups. 

Invite them to participate in the fun and camaraderie. Treat them like a respected and loved teammate. 

Now, some freelancers won’t feel like joining in. And they definitely don’t want to feel forced to do so. They love freedom, remember?

Make sure they know it’s optional. You’d love to have them, but you don’t expect them.

  1. Give Positive Feedback and Props.

Some freelancers never hear a positive word from a client.

They turn in work. The client gives them more work. That’s it.

We all crave encouragement and appreciation — freelancers no less.

On a job well done, share your enthusiasm and praise with them. It can make their day, week, or month.

  1. Send a Small “Thank You!”

This is a next-level, rarely-done way to impress and show your gratitude to freelancers. Send them a small “Thank you!” to demonstrate your appreciation. This might be:

  • A “thank you” card in the mail after a project is completed
  • A small gift or card around the holidays
  • Company swag, like a t-shirt
  • A birthday card or gift.

These little touches can set you apart from every other client who has ever hired them.

  1. Offer to Write a Testimonial. 

If you love their work, tell your freelancer you’d be glad to publicly recommend them via a testimonial. 

This is a thoughtful, helpful offer. Freelancers often feel awkward asking for testimonials. And some companies are unwilling to share them.

  1. Refer Them.

This one’s huge. And easy for you.

Recommend them to colleagues and friends internally and at other companies.

After you do, shoot them an email saying something along these lines, “I recommended you to my colleague, Sarah. She may get in touch soon about a freelance project.”

Simple for you. Very meaningful to them.

One last thing about how to manage contractors …

Freelancers today make up over 33% of the American workforce. That’s about 57 million people.

In other words? The world has changed. The freelance revolution is here. And smart companies will take advantage of this.

They’ll build a talent pool of freelancers they can call on whenever they need them. They’ll go with the change, instead of fighting it. And while dozens of companies fight over one potential full-time hire, the companies who have built their freelancer talent pool will simply hire freelancers for projects as they need them.

If your company is one of these companies, you ensure you get easy access to the best talent out there, adding new skills to your teams that don’t exist in-house.

You can make your company more flexible, handling incoming work when it heads your way with ease.

You can save your company money by avoiding making expensive full-time hires, as well as adding a benefits package on top.

You can scale your company with greater ease, handling busy seasons and influxes of work by simply tapping that pool of freelancers.

There’s just one catch:

You do have to get started.

Now is the time to learn the platforms, techniques, and strategies for making freelancers part of your business. If you don’t, you might lose out on one of the biggest waves in labor in the 21st century. 

In the previous lessons, we’ve talked about how you can onboard, manage, and retain top freelancers.

But it all comes down to a central tool:

Book a demo with Stoke Talent to begin your journey. Stoke Talent gets rid of the financial, admin, and legal headaches of working with independent contractors, freelancers, gig workers, and consultants.

It eliminates the nightmare of paying dozens of freelancers in different currencies and methods.

It helps you build a phenomenal talent bench that can take your company to the next level.

Written by
Stoke Talent

Team

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