Khabza Career Portal

Tips to Manage Risk When Hiring Freelance and Contract Workers

Hiring Freelance

Hiring freelancers or contract workers provide a simple way to build or extend your staff. Any type of work you need accomplished you can hire a freelancer to do. You can seemingly have a massive staff and free up your own work hours for building your own business.

As with any business undertaking though, risks exist. You can easily mitigate each of these to get more work done.

What are the risks of hiring contractors? 

As popular as the gig economy has become, it still has its drawbacks. Before you jump in and hire anyone as a freelancer, you need to understand the risks before you and create a plan to mitigate them. Six main risks exist.

Misclassifying Workers 

You need to read and understand the Internal Revenue Service regulations surrounding independent contractors (IC) and employees. Certain items are no-nos when it comes to freelancers. You cannot tell them when to work, how to work, assign them titles nor provide them business cards. Unlike working with employees, you will not have access to an independent contractor’s computers or mobile devices. They bring their own equipment and you will have no snooping rights. With an employee, you set their hours, pay them a set salary or hourly rate, pay their Medicare, Social Security and unemployment taxes and provide benefits. Since you own the equipment an employee uses, you may install software that tracks its use to protect yourself from employee misuse. The one thing the two types of workers have in common is that you can set work milestones and deadlines by which they must complete the work. You can incur significant legal liability and face IRS seizure of your assets if you violate the law regarding independent contractors and employees.

Inadequate Project Documentation 

You need to create a complete project document at the outset that sets forth the requirements. This statement of work should provide as much detail as possible about the commissioned project, milestone dates and descriptions, payment dates and payment amounts. This document also needs a termination clause to protect you if you need to drop the contractor without full payment if they miss deadlines or submit work of low quality. The termination clause protects you from legal liability. Have each IC sign the project document before beginning. Without this document, you go into court unprotected if sued.

Failure to Designate as “Work Is For Hire” 

Your project document must designate that the work the IC completes is a “work for hire” otherwise, the IC owns the copyright. According to the US copyright office, the creator of a work owns the copyright. The only exception to that is when the item was created under a “work for hire” agreement. You may name yourself or your business as the author or creator of any work an employee or freelancer creates as long as it was created under a work for hire agreement that specifies the scope of work, the pay and that plainly states that the project they are completing is a work for hire. You only obtain the rights to the specific work for hire described in the project document signed by the IC.

Late Payment or No Payment 

Pay your contractors quickly and in the amount agreed upon. Most ICs will take legal action for non-payment. In a step-wise fashion, you will probably receive a demand letter from their attorney, then have it sent to collections if you ignore the attorney. Their final step is to take you to small claims court which would mean paying them, attorney fees and court costs. Rather than damage your business’ credit rating and your reputation, simply pay your ICs when they submit their completed work.

Matters of Disclosure 

Protect yourself from an IC who knowingly or unknowingly shares your firm’s information with another business by having each IC sign a non-disclosure agreement (NDA). The NDA provides you legal recourse if you learn that the contractor shared your business’ data concerning its business partners, operations, products and/or services.

Workplace Training Issues 

While the freelancers you hire are not employees, you are still responsible for legal issues related to them. Whether a manager, employee or IC experiences or acts to create sexual harassment or discrimination, you remain legally culpable. based on race, color, or national origin, you could face legal problems. Your freelancers also need to receive training as your employees and managers would have so they know how to maintain professional behavior in all interactions.

Additional Tips for Managing Risk when Hiring Contractors 

Besides specific mitigation of the above six risks, you need general policies that guide and control your business’ engagement of contract labor. Your business practices can create a positive environment that contributes to your firms’ success and helps to create a healthy work culture.

Contracting with freelancers provides a simple way to accomplish work in an efficient, expert manner. As long as you can handle simply handing the assignment to someone and letting them do it their own way – as long as it remains legal and moral – contracting with freelancers can help you cheaply accomplish a lot of work in a little time. 

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