Contracting has long been a popular solution for both businesses and individuals who seek flexibility. Now in this unpredictable environment we are seeing the number of contractors on the rise.
Many businesses enjoy the flexibility and convenience of engaging contractors who are skilled specialists and require little supervision. And many individuals enjoy the flexibility that contracting brings: they enjoy being small business owners and having control over the work they do.
However, there are pitfalls and risks to contracting. Below are seven mistakes to avoid that can be very costly in terms of money, time and resources.
1. Hiring a contractor in an employee role
Businesses should not use a contracting arrangement to avoid paying employee entitlements. Not only is this morally wrong, but it can be financially very costly.
Suppose a business hires someone as a contractor when they are actually an employee. The business may be liable for unpaid entitlements and penalties, as well as the cost of the reputation damage they may incur.
Contractors are generally highly skilled individuals who have a degree of control over when and how they work; they are often business owners on their own account. In contrast, employees have less control over when, how and what they do.
(Note also that the government may be tightening some of the rules concerning dependent contractors: we await the outcome from the consultant document and public feedback of early 2020.)
2. Not getting the paperwork in order
Both the business and the contractor should agree and sign an Independent Contractor Agreement before the job begins. This agreement will clearly establish the role’s requirements, including remuneration, deliverables, ownership of work, insurance obligations, confidentiality, and the notice period. The contractor needs to have an opportunity to review and seek legal advice before signing.
The Independent Contract Agreement ensures that everyone understands the nature and expectations of the role. It will reduce disputes and misunderstandings, and it also ‘adds weight’ to defining the position as a contracting rather than employment role.
3. Breaking promises
The business needs to keep its promises and do everything it said it would do. It makes sense to keep your contractors happy. This will build a strong, trusting relationship, and help ensure that contractors are motivated to do the best they can to create value for the business.
One super important task to get right is contractor payments – contractors need to be paid on time. Contractors rely on on-time invoice payment for their livelihood, and it is just not fair to push their payment out one or two days (or longer) to help the business cashflow.
4. Not defining the role before hiring
Before hiring a contractor, the business should clearly define what the contractor will do: what problems they will solve, what tasks they will undertake, their performance expectations, and where the role is physically based (remote, onsite or a mix of both).
Without a clear role description, the risk is that the contractor will not add the anticipated value to the business. The problems or opportunities they were meant to be addressing will remain unresolved.
5. Not considering both the pros AND CONS of overseas contractors
Once you have defined the role, you may decide to employ a contractor from overseas. Lower cost can be a significant advantage here. But it pays to be aware of the potential pitfalls, with the main one being that many overseas contractors require more management and supervision. Also consider communication issues, time zone delays, the need for local New Zealand knowledge, and (if they are customer facing) your market’s expectations.
There are plenty of agencies and mega-contracting recruitment platforms that can help you find overseas contractors. Be aware that many of these intermediaries take a high commission (and it can be challenging to ascertain how much the contractor is actually being paid).
6. Cutting corners when finding the right person
Depending on the size of the role and the value to the business, a similar approach should be taken to hiring contractors as to hiring employees. No matter where or how you decide to hire your contractor, face-to-face interviews (in person or via live streaming), references and (if appropriate) portfolio checks should be undertaken. Cutting corners here can be costly – the business needs to be as sure as they can, that the contractor is going to meet their expectations.
Note that, as well as the skills, experience and technical knowledge, the business also must consider whether the contractor has the communication skills, self-motivation, independence, organization and confidence to work as a contractor.
7. Not giving the contractor the time they need
The business needs to plan how they will manage the contractor, especially if it is a remote arrangement. Will there be set deadlines? Will regular weekly meetings? Who will be responsible for communications to the contractor?
Although most contractors are skilled professionals and require less supervision, they need some management time to ensure that they do their best work. They can’t do it alone! The general rule of thumb is: the lower the contractor’s cost, the more management time will be required. Managers need to commit and be disciplined, ensuring they give their contractors the time that they need.
There is a wonderful talent pool of skilled professionals who are making a lifestyle choice to be contractors. With a bit of planning and forethought, the mistakes listed above are easy to avoid, which means that contractors can be a fantastic and valuable resource for businesses in today’s environment.
Louise Woollett-Ratcliffe is known as The Contractor Connector. Her focus is empowering mums and parents by helping to match them with flexible working solutions they can arrange around their parental (and other) obligations. Hello Contractors connects businesses to their ideal contractors.