In 2019, total spending on outsourcing in the United States amounted to $21.6 billion.
Outsourcing or hiring independent contractors has taken the world by a storm and rightly so.
It provides businesses access to a broad pool of talent worldwide, while cutting their operational costs at the same time.
Hiring contractors vs. permanent employees means you don’t have to pay for their health insurance, worker’s compensation insurance or payroll and income taxes. While the hourly rate you will pay contractors might be higher than what you pay your regular employees, the amount you save on the abovementioned aspects makes it a very cost-effective solution.
But managing contractor work has its set own of challenges, especially when it comes to standards, practices and payroll as well as health and safety policies and legal compliance.
In this post, we’ll share everything you need to know about contractor management, from what it entails to how it works.
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"DesignRush Recommends: Contractor Management Tool"
What is Contractor Management?
Contractor management is the act of supervising the work of contractors hired for a project. The purpose of it is to manage the service delivery, the contract and the relationship with the contractors.
This type of management also involves overseeing the safety of the contractors as well as the legal responsibility of the owner of the project.
A contractor management system involves a set of rules to oversee the contractor services, support operations and performance goals.
Most modern systems for this purpose typically use payroll software platforms to enable easy data management and sharing between the parties involved. They do this through PEO companies that aid in global hiring.
A contractor management system, also sometimes referred to as contractor management program, keeps contracts in one place, thereby eliminating manual paperwork and also ensuring that only authorized persons can access the contracts.
Who Are Independent Contractors?
To even better understand what contractor management is, we need to explain what contractors are.
Contractors (also referred to as freelancers or self-employed workers) are independent workers hired to complete separate parts of a project. Often, organizations depend on contractors for their specific set of skills and knowledge and contract multiple people to tackle different aspects of the same project.
This helps save time when a company’s full-time employees cannot handle the workload themselves or lack the skills and expertise to do so.
Independent contractors can be found across industries, from accountants and attorneys to construction workers, designers, copywriters and more.
- Paid per project as opposed to being paid on an hourly or weekly basis
- Free to work outside of the established hours
- Free to subcontract parts of the work
- Usually responsible for providing their own tools/equipment
As such, contractors are not seen the same as regular employees hired directly by an organization, legally speaking. Hence, they are often not entitled to the same rights or benefits, such as a health insurance plan or a 401k plan, for example.
Why Is Contractor Management Important?
Contract work has become increasingly popular across industries. Hiring contractors and handling scheduling and task management is challenging, whether contractors work in a field outside of the office or are hired remotely and work in a different geographic location or even time zone. This is true especially in areas where employers don’t have legal entities, which further complicates tax issues.
One of the options you have as a company is to establish a legal entity in the location where you want to hire contractors. The other is to use the employer of record method where a third-party organization serves as the employer for tax purposes while the employee works for another company (in this case you).
Considering that employment and payroll legislation varies from one country to the other, hiring international workers can be extremely complex.
Contractor management ensures that services are delivered as ordered, communication between an organization and its contractors is efficient and the organization hiring contractors can have a clear insight into all tasks and activities.
Benefits of Contractor Management
1. Legal Compliance
Legal compliance is crucial when hiring contractors as the risks and penalties for failing to comply with the legislative requirements can be costly and damaging.
The risks of lawsuits from contractors can vary from breach of contract or discrimination to intellectual property disputes, wage law violations and others.
If you’re hiring international contractors, the legal risks are even greater as legal responsibilities and penalties vary from country to country. Managing contractor work helps mitigate these risks and avoid legal troubles as it ensures you are compliant with local employment laws and can monitor and update contracts efficiently.
2. Streamlined Payroll
Paying contractors can also be complex, especially if they’re remote workers. Payroll for independent contractors is made easy with a management system as they streamline the payroll processing. Organizations can process payments quickly regardless of the location of their hired contractors.
3. Less Paperwork
A contractor management system helps minimize paperwork and manual work for both the organization and the contractor. By keeping all the relevant documents and information in one platform, both parties can have access to what they need with just a few clicks.
4. Improved Communication
Great communication is essential for the success of any project. A contractor management system connects people and enables them to communicate efficiently by providing a chat option. It also gives organizations insight into tasks’ statuses.
5. Simplified Reviewing and Analyzing
Implementing a contractor management program helps streamline the process of hiring contractors, managing projects, reviewing work and analyzing other work-related activities. Since everything is transparent and stored in the system, organizations can oversee all activities, spot and handle any irregularities in tasks and improve productivity.
Who Does Contractor Management?
It can be difficult to oversee all the activities of your remote workers.
This is why many businesses integrate systems to gain visibility and control of their projects.
There are many contractor management platforms available that provide control and visibility in contractor work. These software tools are typically managed by third parties that serve as mediators between the contractor and the organization hiring their services.
Contractor management software simplifies the process of hiring global talent. It can even source remote workers for organizations based on their requirements while ensuring legal compliance at every step of the process.
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Factors for Successful Contractor Management
Successful contractor management depends on several factors. To manage contractor work effectively, consider the following best practices:
Contractor Selection Criteria
The first step towards successful management of contractor work is the criteria selection process. Establishing the criteria for hiring contractors starts way before a project begins.
This is also referred to as prequalification of contractors.
Establish systems for evaluating candidates and their qualifications, capabilities, etc. This step is also important for establishing responsibilities for both parties: the contractor and the organization contracting their services.
This way, when applications start coming, you will know exactly what you’re looking for and will save time in the process.
When you determine the skills and qualifications needed for your project, create a detailed job description with a clear explanation of the type of services you need.
The job description should clearly define the skills required, scope of work/duration of the services required and payment structure.
Risk assessment is a vital part of contractor hiring and management. Some projects are more hazardous than others, particularly in industries such as construction or electrical work where injuries are common.
These risks can result in project delays and increased costs. It is important to conduct a risk assessment to identify potential hazards related to activities contractors will perform.
Managing contractor safety is the responsibility of the organization hiring the contractor, so all potential risks related should be identified and efficiently managed by the organization hiring contractors. Contractor safety management and compliance protects both the contractor and the organization hiring them as it helps avoid legal troubles and potential project delays.
The auditing process helps ensure that contractors clearly understand the project requirements and their responsibilities. For this stage, develop a system by which you will evaluate contractor applications and determine whether they are a good fit.
Conduct brief interviews with the contractor applying for the job to go over the work requirements needed for the completion of the project.
At this stage, the contractors should also be made aware of any potential risks related to the job, if any as well any permits and licenses they might require to complete the tasks.
If the project requires it, you should also plan and execute training sessions to prepare contractors for the activities they will perform. This includes health and safety training as well as any other relevant training sessions required for the project.
This especially applies to heavy industry jobs where safety is a priority.
Here, you should also determine and clearly communicate what type of training is provided by you and what falls within the contractor's scope of responsibilities.
Schedule regular follow-up meetings to provide feedback to your contractors as well as to answer any questions they might have related to the project they’re working on.
Regular meetings help tackle any hurdles along the way and help increase productivity. It is important to be available to both give and hear feedback to ensure successful completion of the project.
1"DesignRush Recommends: Contractor Management Tool"
Companies that hire contractors, whether locally or internationally, often need assistance managing the entire process, from recruiting to service delivery. You can benefit greatly from a platform that streamlines all aspects of contractor management from hiring to payroll.
One such platform is Remote.
Remote is a comprehensive platform that offers international payroll and handles taxes and compliance issues for companies hiring globally.
Remote’s solutions enable companies to:
- Hire contractors: Onboard contractors from 170+ countries with a few clicks.
- Run payroll: Pay contractors with a click regardless of their location.
- Expand globally: Hire global talent without worrying about legislation
- Offer benefits: Provide country-specific benefits for your global employees
Remotes offers the following services:
- Employer of record
- Contractor management
- Global payroll
- Remote relocation
- Consulting services
Remote offers a free plan for contract management and a $299 plan for employer of record service (the first employee is free if you sign up) as well as custom plans for global payroll and remote enterprise.
Key Contractor Management Takeaways
Hiring and managing contractors has numerous challenges including legal and safety compliance, effective communication and lack of control over activities contractors perform, to name a few.
A contractor management system can help you streamline processes and provide visibility and control over tasks and responsibilities.
It is also important to follow the best practices outlined above and be specific about the services and job requirements in order to build solid relationships with contractors who deliver quality work.
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