The COVID-19 pandemic has greatly affected the lives of so many people around the world. Not only did it put a stop to leisurely travel, but it also caused the closure of so many establishments. And this also resulted in employers having no choice but to let go of their staff.
Instead of choosing to hire locals, many employers turned to the trend of contract staffing. With this option, they can have a global reach in terms of talent and specializations.
Business owners had to rethink their hiring process and adapt to this so their business can continue operating.
The rise of contract labor has had a global phenomenon. In fact, an Oxford Economics survey revealed that 61% of executives have increased their use of contract labor.
Additionally, 47% of employers are planning to hire part-time or contract workers, according to CareerBuilder’s Annual Jobs Forecast.
But just how viable is it for a business to hire contract staff? Is it always the best option available? And as an employer, what are the things you need to know about contract employees?
In this guide, we’ll help you know everything you need to learn about contract labor.
This article includes:
(Click on the link to go to a particular section)
- What is Contract Staffing?
- Contract Staffing vs Permanent Staffing
- Benefits of Contract Staffing
- Disadvantages of Contract Staffing
- 5 Key Steps When Hiring Contract Employees
What is contract staffing?
Just as its name suggests, contractual staffing refers to individuals who are self-employed and offer their services to business owners on a contract basis.
Before getting any work done, contractors negotiate their pay rate and work schedule with the employer. Depending on the agreement, contractors may work exclusively for one company throughout the project.
But without an agreement, they are free to work with multiple clients. And since these individuals are considered as contractual or temporary employees, they are responsible for processing their own taxes.
The biggest edge they have over regular employees though is that they enjoy a large amount of independence in how they do their job.
Contract staffing vs permanent staffing
As a business owner, you must know the difference between contractual staff and permanent employees. Mainly, the difference between these two is their pros and cons.
While permanent staff gets to enjoy the benefits that come with the job, these benefits are not always available to contract labor. At the same time, regular employees don’t get to enjoy the independence that contract employees get to enjoy.
Another difference between the two roles is how they do their taxes. Contractors are responsible for doing their own taxes, which means you no longer have to pay social security tax (FICA), employment tax, or unemployment tax. Instead, you only pay them the flat amount they charge.
Plus there’s also the factor of job instability that temporary employees face. Since you come into an agreement at the start of the contract, you do not have to keep working with the individual beyond the end of the contract.
Get to know more about these differences in the next section:
Benefits of contract staffing
Here are some of the benefits that you get to enjoy as an employer when you opt to hire contract employees over traditional salaried employees:
When you choose to hire contractual staff, you will only work with them while they work on a specific project. Once the project is done, you are not obliged to extend or renew the contract if you don’t need to.
You can assess whether or not the project requires another individual to do the job. As such, you can easily hire new contractors without the need to restructure internal responsibilities.
2. Increased specialization
Another perk you get to enjoy when hiring contract staff is that you don’t have to pay to train your employees anymore. This is particularly true if you need access to a highly specialized skill or knowledge for a project.
You can even opt to hire industry experts to help you with the project on a contract basis. By doing this, you get access to their specialization without having to train them yourself.
Once the project is over, the employee gets paid and goes on to work for another company. There’s no need for you to have him on your team full-time.
3. Low overhead costs
Hiring temporary employees can also help you save on overhead costs. Not only do you get to save money in providing him his own equipment and office space, but you also don’t need to provide other benefits.
If the project only needs a few hours of work per week, it’s more cost-effective to pay someone a flat rate instead of an hourly salary.
Disadvantages of contract staffing
While there are perks to hiring contractual staff, it’s not always the best decision for every employer. In fact, there are a few challenges that arise when working with a contract employee. Here are the most common ones:
1. Communication challenges
One of the biggest challenges of hiring contract employees is that they don’t necessarily need to work on-site. And this can make communication difficult among the rest of your team.
But this doesn’t mean every single contractor will be difficult to communicate with. There are actually some who are professional enough to give regular updates so you’re continuously on the same page with the project.
2. Lack of employee loyalty
Since a contractor’s work is usually short-term and part-time, they can often be less committed to your company. This is particularly true with contractors who work with multiple clients.
Their inability to spend time with your other employees also reduces their chances of building trust and loyalty. And this is a reason why contract employees can easily move on to another job.
3. Potential legal issues
There are also potential legal issues that you may be breaking when you decide to hire contractual staff. To avoid these issues, you need to follow the proper classification requirements when you decide to hire someone on a contract basis.
More importantly, you have to make sure that your contract employees are not covered by the AB5 law in California. Otherwise, you could be penalized for failing to provide them their benefits.
5 key steps when hiring contract employees
1. Review your current business operations
When you’ve decided to hire contract employees to be part of your business, the first thing you need to do is to review your existing operations.
Try to figure out if you will need a federal employer identification number (EIN). To do this, think about what entity type you have. Small businesses usually incorporate so they can receive liability protection. But there are still other options available.
If you decide to hire an employee, you will need an EIN. You should also determine whether your business has been registered as an actual business or not.
When you work with a temporary employee, however, you need to make it clear that you will be working with an independent contractor and that you won’t be hiring an employee.
You have to be very clear about this so that you can prove that you are not working with an employee. The IRS usually takes a look at several factors to determine the status of a worker. If you are unable to prove that the contractual staff is an independent contractor, you may face a fine or penalty.
2. Create the right job description
After being clear with your business operations, the next thing you need to do is to start creating the job description. During this stage, you need to define the relationship with your potential applicants.
Some of the things you will need to consider include the following:
- Will you be working on a project-to-project basis?
- Do you need the person to be local?
- Do you need a person to work from your office?
- Is this person someone you eventually want to join your company full-time?
When you’re writing your job description, add these details so that you can find a candidate who is on the same page as you.
3. Don’t take shortcuts to the hiring process
Now comes the difficult part– the hiring process. Even though you will be working with contractual staff, you need to treat each individual as an actual applicant.
Make sure to check a potential candidate’s credentials and references before you decide which individual to hire. Run a background check on the applicant to determine that there are no felony convictions.
You should also read other reviews of the candidate so you have an idea of who you are dealing with. After all, you will be giving this person access to crucial parts of your business. You need to be able to trust this person.
If you prefer, you can use the services of a third-party recruiting app to help you find the right candidate for the job.
4. Have the right tools in place
Especially if you will be hiring someone remotely, you must have the right tools in place. This will help establish trust with the contract staff that you hire.
The tools we recommend include the following:
1. Cyber insurance
With the COVID-19 pandemic still raging on, it’s no surprise that many permanent and contractual employees have shifted to working from home.
In fact, Upwork reports that 57% of teams are now at least partially remote, another 41% have fully transitioned to working from home.
These numbers will likely continue to grow. And the threat that comes along with it, will do so as well.
In fact, the FBI has reported a 300% increase in cybercrime complaints after the pandemic started.
As an employer, you need to make sure that the remote staff you hire will practice your company’s cybersecurity protocols and practices. This way, your company’s systems, and data will not fall into the hands of a hacker.
Fortunately, you can now use cyber insurance to help you with the aftermath of a hack. Embroker is one tool you should consider, especially if you intend to continue working with remote employees in the future.
2. Fast computer
Some users don’t realize that their device is already being victimized by malware. As an employer, you should have your remote staff use tools that can help safeguard them against cyber hacks.
If your temporary employees are on a Mac device, Mac cleaner is one tool that will help them out. This tool can help run daily malware checks without disrupting their usage.
Once the app detects any malware, it instantly removes it and continues to safeguard computers against online threats.
In fact, the app was certified by the AV-Test Institute, a German IT security research organization. It topped the charts for protection, performance, and usability.
By enforcing your remote employees to use this tool, you not only help them stay safe from online attacks, but you are also protecting your business.
3. Employee tracking and management
Lastly, you will need a tool that can help you track and monitor the time your employees spend on your project. This will help build trust with the remote staff you hire and make sure that they are not working on another client.
There are employee tracking and management tools that you can use to see the amount of time your employee spends working at the computer. These tools will help you analyze their patterns so you can help improve their productivity.
The good thing about this tool is that it can help you set up payroll using the online timesheet being tracked by the app. As a result, you don’t need to hire HR services to manage their payroll.
5. Put everything in writing
Before you start hiring contract staffing, you need to make sure you have an independent contractor agreement in place. This is basically a legal contract that explains your business relationship with the employee.
This is an important document to have to make sure both parties are on the same page. In turn, it reduces legal issues and the need to waste time and resources.
When making the agreement, you need to include the following information:
- Project description
- Equipment to use
- Timeline and deadlines
- Standards for evaluating work
- Any other specifics
You can have your lawyer draw up the document for you to make sure you don’t miss out on anything.
Hiring contractual staff may be an attractive alternative for your business. But before you start looking for one, you must consider what your business truly needs. Make sure to check the legalities of this decision so you do not get imposed with a fine or penalty.
If you’re ready to start hiring your contract staff, you’ll need to have the tools in place. You can sign up for a free trial of Time Doctor here to help you monitor the performance of your remote employees.
Kevin Payne is a content marketing consultant that helps software companies build marketing funnels and implement content marketing campaigns to increase their inbound leads.