How To Hire a Contractor: Steps and Best Practices

The rise of independent contractors is changing the way people work. The number of full-time contractors in the U.S. skyrocketed from 15.3 million in 2019 to 26 million in 2023—a huge increase in a few short years.

An independent contractor is someone who provides services to your company but isn’t an employee. They’re self-employed and typically work on a project-by-project basis. And hiring one can have huge perks.

Here are the benefits of hiring contractors, what to watch out for, and how to find the right person for your needs. 

What Are Independent Contractors?

If you need a skilled worker for a special project but don’t want to take on a new full-time employee, an independent contractor might be the answer. They provide specialized services for specific projects, from electricians to landscapers. Plus, you avoid the costs and legal overhead of hiring a new employee.

You don’t have to closely oversee contractors like you might with employees. Independent contractors are their own bosses. They decide when they work and what tools they use. They usually work for more than one client at a time. 

You also don’t have to take employee benefits or taxes out of contractors’ pay. Instead, you file a 1099 form, which gives the contractor what they need to file taxes themselves.

5 Reasons To Hire an Independent Contractor

More and more companies are turning to contractors to get work done. Here are five key reasons why:

1. Low Overhead Costs. When you hire an employee, you have to pay for benefits, equipment, office space, and other expenses. With a contractor, you only pay for the services they provide. This saves a lot of money.
2. Minimal Supervision. Independent contractors are experts at what they do. They usually require little oversight or management, which frees up your time to focus on your core business activities.
3. Flexibility. Contractors give you the flexibility to bring in extra help when you need it—without the long-term commitment of hiring an employee. This is especially useful for one-time projects or busy seasons.
4. Specialized Skills. By hiring a contractor, you tap into specialized skills and knowledge your team may not have. This lets you take on a wider range of projects.
5. Global Talent. With remote independent contractors, you can work with the best people for the job, no matter where they are in the world. You gain access to a much wider talent pool.

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Potential Drawbacks of Hiring Independent Contractors

While there are many good reasons to hire independent contractors, it’s important to recognize some of the challenges, too. Here are a few potential downsides to keep in mind:

• Misclassification Risks. One of the biggest risks is accidentally treating a contractor like an employee. This is called misclassification. It can happen when you expect too much commitment or breach contract. It leads to serious legal and financial problems, like fines and penalties.
• Less Control. Remember, contractors are their own bosses. This means you have less control over how and when they work compared to employees. You can’t set their hours or tell them exactly how to do their job.
• Availability and Reliability. Contractors often have more than one client. This means they might not always be available when you need them or prioritize your projects first.
• Harder To Build Long-Term Relationships. Contractors come and go as projects start and end. This temporary setup can make it tougher to build strong, lasting working relationships.

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What To Do Before Hiring a Contractor

There are some important steps to take before you start your search:

• Set a Budget. Figure out how much you can afford to pay a contractor. This will help guide your search and negotiations. Don’t forget to factor in any extra costs like materials or rush fees.
• Ensure Compliance. Hiring a contractor means following state and federal laws. These rules cover things like worker classification, taxes, and more. Do your homework to avoid legal issues.
• Classify Workers Correctly. Make sure you’re correctly classifying your workers. Getting this wrong can lead to penalties or even lawsuits. If you’re not sure, consult with an expert.
• Put It in Writing. Always have a written contract that outlines the scope of work, deadlines, and deliverables. This protects both you and the contractor. Include things like pay, confidentiality, and who owns the final work product.
• Understand Your Tax Obligations. When you hire a contractor, you’re generally not responsible for withholding income taxes. But you still need to report their earnings to the IRS. Make sure you know what forms you need to hire an independent contractor, like 1099s.

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What Should You Look for in a Contractor?

To find the right contractor for your project, look for someone with:

• Relevant Skills and Experience. They should have a proven track record of successfully completing similar projects.
• Reliability and Professionalism. Look for someone with a reputation for communicating clearly, meeting deadlines, and being easy to work with. If possible, ask people in the industry for recommendations.
• Strong References or Reviews. Ask for references from the contractor’s past clients to get an idea of their work style and reliability. If you’re using an online job board, check reviews thoroughly.
• Fair and Transparent Pricing. Make sure they offer competitive rates and are upfront about all the costs involved in the project.

How To Hire a Contractor: Step-By-Step

Hiring a contractor doesn’t have to be complicated. Here’s a step-by-step guide to help you through the process:

1. Define Your Project

Before you do anything else, clearly define what you need. What are your project goals? What tasks do you need the contractor to handle? What’s your budget and timeline? Having a solid plan for your project makes the rest of the steps much smoother.

2. Search for Qualified Contractors

Start looking for contractors who fit your needs. You can use online job boards, freelance marketplaces, or recommendations from people you trust. Look for contractors with experience in your industry and with similar projects.

3. Review Portfolios and Proposals

Once you have some candidates, take a close look at their work. Review their portfolios to see if their style and skills match what you’re looking for. If they submit proposals, evaluate them carefully. Do they understand your project? Do their rates fit your budget?

4. Conduct Interviews

Set up interviews with your top choices. This is your chance to ask questions, discuss the project in detail, and get a feel for their communication style. Do they seem reliable and professional?

5. Make Your Selection

Based on everything you’ve learned, choose the contractor you want to work with.

6. Verify Compliance

Before you each sign the contract, make sure the contractor is set up to work legally. Depending on your location, this might involve checking for business licenses, tax IDs, or other paperwork. It’s important to ensure everything is above board to avoid potential disputes.

If you’re considering hiring international contractors, make sure you also follow employment law in their area.

7. Set Expectations and Sign a Contract

Clearly outline all project details, deadlines, and payment schedules. Put everything in a written contract and have both parties sign it. This protects both you and the contractor.

8. Manage the Relationship

As the project moves forward, stay in touch with your contractor. Provide feedback, answer questions, and make sure they have what they need. Set up a regular invoicing and payment schedule to keep things running smoothly.

9. Wrap Up

When the project is finished, provide final approval and payment. If you’re happy with the work, consider leaving a positive review or offering to be a reference. A good working relationship with a contractor can be a valuable asset for future projects.

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5 Best Practices for Hiring Independent Contractors

Follow these best practices for successful and stress-free contractor relationships:

1. Set Clear Expectations. Be crystal clear about what you need the contractor to do. Give them detailed information about the project, your goals, and your timeline so they know what you expect from them.
2. Put Everything in Writing. Always use a written contract. It should spell out exactly what work needs to be done, when it’s due, and how much it will cost. This avoids misunderstandings and protects both you and the contractor legally.
3. Communicate Regularly. Don’t micromanage, but don’t disappear, either. Stay in touch throughout the project. Set up regular times to chat about how things are going, give feedback, and answer any questions the contractor might have. You might have to adjust your regular communication style to match the situation.
4. Keep Good Records. Keep track of any paperwork related to the project, like contracts, bills, and payments. Organizing everything makes your life easier come tax time and helps you stay on top of legal requirements.
5. Be Professional and Respectful. Treat your contractors with the same respect you’d give a colleague. Be polite, professional, and appreciative of their work. A good working relationship built on trust and mutual respect will make the work better for everyone.

Stay Organized and Manage Customers on the Go

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