Contractors and small IT businesses go together like peanut butter and jelly – the perfect complements. While contractors enjoy the freedom of self-employment, small-business owners save money by only hiring the talent they need when they need it.
However, if you’ve never hired a freelancer before, there are a few things you should know, such as why it's important to make sure they have contractor insurance. Here are five tips from experts that can help you cover your bases before you hire.
1. Search Smarter
In other words: don’t just Google “freelancers in my area” and hire the first person that pops up. Ask for recommendations from other business owners who work with freelancers. You can check with your staff as well, but make sure the person they vouch for is someone they have personally worked with, not just a friend.
Troy Hazard (@troyhazard), a
serial entrepreneur, speaker, author, and television host, notes, “Your staff, while loyal, can sometimes get blinded by the recommendation of a friend or by the recommendation of ANYONE that looks like they have half a skill set if it means it will take some of the load off of your team.”
2. Ask for References and Examples of Past Work
Once you identify a few potential candidates, ask them for samples of their work and references – which you should definitely take the time to check.
“This is one of the most important aspects of the interview process,” says
RJ Martino (@rjmartino),
(@iprovonline), a digital marketing firm and IT managed service provider. “You should find a worker who has years of experience working as a freelancer and who has long-term contracts. This demonstrates reliability.”
Martino also suggests that you…
- Ask them about past work specific to the task that you're hiring them for, and request samples of that work.
- Confirm their availability, and tell them exactly when you need them to work.
“Do your homework,” says
Stuart Crawford (@stuartrcrawford),
creative director and CEO of
(@ULISTIC), a specialty firm focused on information technology marketing and business development. “We interview and test our many freelancers. Some are simply not good, some are awesome, and the majority of them are average. When putting together our website team, we went through many freelancers until we found the team we have now.”
3. Get it in Writing
Small-business owners and freelancers often proceed on a handshake agreement rather than drawing up a contract, and that can hurt both parties. A contract that spells out the scope and terms of the assignment can save you headaches down the road.
“I suggest you work with a local contract attorney who will draft a subcontractor agreement,” says Martino. “The biggest pitfall we see with our agreements is when business owners have left out a non-compete clause. We’ve lost future work to contractors that we introduced to the client!”
Peri Berger, an
Harris Beach PLLC
(@harrisbeach), recommends that freelancer contracts address…
- Fundamental terms. What is the service, how will payment occur, and when will it occur?
- Intellectual property. Set clear expectations that you are the owner of all work they create for you.
- Non-disclosure / confidentiality. It’s a good practice to have a non-disclosure agreement and/or a confidentiality agreement in place when working with contractors.
- Indemnification. Try to include indemnification provisions in the contract in which your vendor takes on liability for any action they take (or fail to take) that results in your liability.
For more on what to include in contracts, read “Contracts You Need When Hiring a New Contractor.”
4. Decide Which Payment Method Works for You
You’ll also need to decide how you are going to pay your contractor: by the project or by the hour. The method you choose might depend on the project and your personal preference.
“For me, it’s by project,” says Hazard. “We always scope the work and ask them to quote on a fixed fee. If they got it done faster than expected, then no problem. If they did not, we were not going to take it in the neck for their inefficiencies. Having said that, if the scope of work does change, we would offer the opportunity for them to revise the quote. Fair is fair.”
“When starting, I suggest you find a very small project with clear deliverables and pay a flat fee,” adds Martino. “This will give you a working relationship and you can figure out if you enjoy working with the contractor. Then and only then can you move to an hourly arrangement.”
5. Address Your Business's Liability
This is a biggie. Whenever you hire contractors or freelancers, you open the door to risk and potential lawsuits. For example, if you misclassified your new hire as a contractor when they are an employee, the state may come after you.
“An employer must ensure that the contractor is truly a contractor and not a misclassified employee,” agrees
Marta Moakley (@marta_m811), a
legal editor at
(@XpertHRusa). “A mere label does not determine whether a worker is an employee or a contractor.”
Your business can also be liable for mistakes your contractors make. That's why it’s a good idea to hire workers who have their own contractor liability insurance. Depending on the length of the contract and the nature of their work, you may want to include them on your own General Liability Insurance and Errors & Omissions Insurance, too.
“One of the biggest risks an owner takes on is hiring an employee or a contractor,” says Martino. “The owner inherently becomes liable for the work performed by the contractor. To mitigate this risk, owners should include a hold-harmless section on their agreement. In addition, the owner must make sure that the contractor has their own insurance policy.”
To learn more about the benefits of hiring contractors, check out our article “5 Ways Subcontractors Boost Your IT Business.”
About the Contributors
Peri Berger is an associate of Harris Beach PLLC. He serves on the medical and life sciences industry team and practices with the business and commercial litigation practice group and the cybersecurity team. Mr. Berger’s background includes extensive experience in complex commercial litigation and the defense of products liability cases in New York, New Jersey, and the federal courts.
Stuart Crawford serves as creative director and CEO with Ulistic, a specialty firm focused on information technology marketing and business development. He brings a wealth of knowledge and experience pertaining to how technology business owners and IT firms can use marketing as a vehicle to obtain success.
Troy Hazard has founded and nurtured 12 businesses in the recording, real estate, swimming pool, advertising, marketing, pool service, restaurant franchise, and technology industries. He is the author of the book Future-Proofing Your Business, former cable TV talk show host of Gettin’ Down 2 Business, regular co-host of The Big Biz Show on CBS Talk Radio and Business Talk Radio Network, and a former Global President of the Entrepreneurs’ Organization.
RJ Martino founded his company iProv in 2001. The company started out creating websites for a few local businesses and grew into a multi-functional business as an IT managed service provider and digital marketing agency. RJ says running a business with two sides has made him a jack-of-all-trades in IT management and services, as well as digital and inbound marketing.
Marta Moakley is the legal editor for the training and development, employee retention, performance appraisals, promotions, employee communications, managing employees in special situations, employee discipline, recordkeeping, and minimizing liability content in the employee management section of XpertHR. Prior to joining XpertHR, she worked as an assistant attorney general with the Florida Attorney General's Office, and as an equal opportunity specialist for the US Department of Education's Office for Civil Rights.