Hiring Independent Contractors in 8 Simple Steps

Companies hiring independent contractors usually have short-term projects or part-time work that need to be completed in a specific time frame. To hire independent contractors, you’ll identify the work that needs to be done and decide on the qualifications a contractor needs to perform the job successfully. Then, if you opt to post a job on a website, you should prepare a job description. Finally, compile a list of interested contractors and screen the top applicants.

Cost is also a significant factor, so determining an acceptable contractor budget at the beginning of the process will prevent you from wasting time considering those who are outside your range.

Here are the steps to follow when hiring independent contractors:

1. Plan Contractor Projects

Before you make any major decisions about hiring independent contractors, consider whether you really need them or if an employee would be a better fit. Sometimes employers are penalized for misclassifying employees as contractors.

Take time to evaluate the project you need help with. Is it long-term or short-term? Can one contractor handle the job, or do you need multiple?

Generally, the best work for contractors is temporary and doesn’t require years of company-specific experience. Contractors usually have multiple customers, so if you have a long-term project that requires a full-time work schedule, you should consider whether an alternative option would be more feasible than using contract labor. Cost, expertise, and convenience are all important factors.

2. Determine Contractor Qualifications

After verifying your need for a contractor and identifying the work you want performed, determine the qualifications you need in a contractor. Be sure to separate preferences from deal breakers. For instance, if you’re looking for a bookkeeper to “clean up your books” because you haven’t had the time to do it, consider whether you want the person to be certified or have a degree. Typically, bookkeeping certification would be a preference, while experience would be a requirement.

Certain jobs have higher qualifying standards than others. For example, if you need contractors to perform electrical work, you’ll want them to be licensed. When the work can have fatal consequences, you should always look for candidates who have documented education, certification, and/or a license; this minimizes your liability. With a little research, you’ll find that most of these industries, including the power industry, are already regulated, so you’ll just need to verify your contractor’s credentials.

Another industry example for which you’d want to verify credentials is accounting. If you’re looking for someone to help with your finances or taxes, it’s a good idea to set high standards. Financial information is confidential, and any IRS dealings need to be handled by a contractor you can trust. The Certified Public Accountant (CPA) designation is a good credential to check for, but a college degree could work if the contractor has significant experience to prove expertise.

Work experience is a must-have for most companies. It’s hard to spend money for work you’re not confident will be done well. Of course, how much experience depends completely on your preference and the work you need done. If you need a roofing contractor to inspect the roof of a building you’re considering purchasing for your business, you’ll want someone with years of experience.

On the other hand, if the work you need has less severe consequences, like freelance writing, and you run across contractors with limited to no experience who fit your budget, you might be inclined to try them out. In this case, companies would typically assign a test project before committing to a long-term contract just to ensure the contractor is a good fit for the work.

Another important factor to consider is the contractor’s work schedule. How much availability do you need your contractor to have? Although you can’t legally dictate a contractor’s work schedule (or you could face taxes and penalties from the IRS), you can consider how much capacity each contractor has before working with them.

Contractors just starting their business may only have one or two clients, which means they have more time to devote to your project to finish quickly. Others who have been in business for years might have to juggle your work with that of 20 other clients.

If you’re anxious about how much time your contractor will spend working on your project, consider using a scheduling tool like When I Work. You will have the ability to plan their work in advance so you can better track their progress.

3. Write a Job Description

Figuring out what you need and want in a contractor will help you create a solid job description that saves you time by primarily attracting your target candidates. It’s disappointing to sift through a list of contractors who can’t perform the work you have or just don’t meet the qualifications. This is why it’s important to be direct when writing your job description.

Here are the most important items you should include in a job description:

Job details: Provide detail on what the job entails.
Required credentials: If you require a degree, license, or other credentials, include it so contractors who don’t qualify won’t apply. State if it’s a preference rather than a requirement, so you don’t miss out on eligible candidates.
Length of job: Estimate the length of time you expect the job to take. If you’re looking to build a long-term relationship over a series of projects, express this in the job description.
Ideal contractor: It’d be helpful to spell out what your ideal contractor is like. You can list traits like adaptability, charisma, and so on.
Company profile: Include a brief description of your company with details on its industry and clients.
Pay: Some companies list the pay amount (either by hour or project) directly on the job description. Although pricing is an important detail that governs the owner-contractor relationship, it’s not always a good idea to include it in the job description. Instead, request quotes from the contractors you’re interested in; this leaves room to negotiate.

If you’re interested in posting your contract work on a job board, consider Upwork. It offers the largest network of independent contractors, and you can put parameters on your jobs so that only top qualified candidates can apply. Additionally, you can post jobs for free on the site but you are subject to a 2.75% client fee when you pay your contractor.

Visit Upwork

4. Search for Contractor Candidates

Once you know what your needs are and have your job description, you can begin searching for contractors. Deciding where to search sets the stage for this step, and it primarily depends on the type of work you have available. For instance, you’d look for bookkeepers, virtual assistants, and roofing contractors using different platforms. There are numerous avenues you can use to search, but you should take advantage of the internet as it’s convenient and offers a wide reach.

If you need a freelancer—to build an app, create a website, or design a logo, for example—a freelance website would be a good option. The best freelance websites are affordable, easy to use, and offer a broad range of talent. Many of these websites, such as Fiverr, will allow you to post job descriptions on which freelancers can bid, and some sites will vet the freelancers for you.

In the News: The pandemic saw a rise in freelance (or gig) work as more workers moved to remote independent contract status from traditional jobs. A study by Upwork suggests that 36% of the nation’s workforce are currently performing gig work, up from 26% in previous years.

Our top freelance websites include:

Freelance Site	Features
Upwork	Free to post jobs; charges a 2.75% client fee when contractor is paid Offers upgrade features to eliminate unqualified candidates You can pay your contractors by the hour or by project
Fiverr	You can post unconventional gigs such as a singing telegram or package delivery Free to post jobs; charges a 5% client fee when contractor is paid You can search for the kind of work you need done and find a list of freelancers with those skills
Freelancer	Attracts gig workers from all over the world Free to post a job; charges a 3% client fee when contractor is paid Offers three hiring options: projects, contests, and local jobs

With Google, hiring a contractor is much simpler than it was a couple of decades ago. You can easily search for specific contractors in your local area by entering the type of contractor you’re looking for and include your city and state.

Screenshot of Searching For Local Contractors

When searching for local contractors, Google will populate a list of companies in your area in addition to websites, like Thumbtack, that will help you get bids from local professionals to compare before making a hire.

The age-old approach of finding contractors through word of mouth is still popular—and works. If you receive a recommendation, it usually means that person had a good experience working with the contractor. As long as the contractor fits the qualifications you laid out at the beginning of the process and you trust the person recommending him or her, you should at least be comfortable adding the contractor to your “to be considered” list, if not hiring the contractor outright.

5. Compile Applicant List & Screen for Best Candidates

As you proceed through the process of hiring a contractor, start compiling a list of eligible candidates. You should be able to eliminate some contractors before doing any major evaluation. Always refer to your qualification list and job description to keep you on track because it’s easy to become sidetracked when reviewing dozens of candidates.

Be aware that some contractors will look great on paper but aren’t exactly what you need. They may have more qualifications than the job requires and hence exceed your budget. On the opposite end, you’ll find some deals that look very attractive financially, but the contractor’s experience may be questionable.

Once you compile your list, filter it for the candidates that fit your profile of an “ideal contractor” for the job. If you struggle to find ideal candidates, screen for the next best.

6. Request Quotes From Each Contractor

Once you know which contractors you’re willing to work with, you can hone in on pricing. By the time you reach this step, you’ll most likely already have insight into the amount each professional charges. It’s up to you whether or not you want to negotiate; you should wait until officially meeting with them before starting the process.

Be cautious of quotes that are too high or low. Any quotes significantly outside of the general range could signal a red flag. Compare all prices and consider factors such as experience and contractor business structure before drawing any conclusions. Eliminate any contractors that don’t fit.

7. Interview Top Independent Contractor Applicants

After receiving a few bids for the job, you’ll interview the best contractors and negotiate a price before making your final decision. Similar to scheduling a job interview, you should set up a meeting or call with the top independent contractor applicants. Three is a good number to consider, but add more if you want additional options. Use the meeting to ask questions and assess the contractors’ capabilities and compare your findings with the research you’ve already gathered.

Ask questions and review attributes during the interview stage so you’re ready to make a decision shortly after.

8. Extend Offer & Prepare Independent Contractor Agreement

You’ll need to decide which contractor you’ll hire and prepare to extend an offer. Please note that extending an offer to a contractor isn’t as official as extending one to an employee. It’s typically a verbal offer that states information like the price you’ll pay, work performed, and due date; most importantly, it doesn’t carry legal obligations.

Once the contractor accepts your offer, you should prepare an independent contractor agreement. It will contain all of the details you discussed when extending the offer in addition to a confidentiality agreement and documentation on how to resolve issues should a disagreement arise. For the contract to be legally binding, both you and the contractor must sign. It’s best not to begin working with any contractors until a fully executed (signed) contract is in place.

Tip: When it’s time to pay, good payroll software will make processing payroll much easier than doing it manually.

Federal Laws on Hiring a Contractor

One of the best parts about hiring independent contractors is the lack of extensive regulation. Hiring employees subjects employers to numerous laws, but working with contractors is much less complex. Depending on your state, you may have to report new contractors to a state agency. Your primary concern should be ensuring that your contractor is indeed a contractor and not an employee. You shouldn’t dictate how or when the contractor works, only what the final product should be.

Penalties for Misclassifying Independent Contractors

Penalties for not complying with federal laws can be costly. The IRS is very sensitive to contractor-employee misclassifications and will search for those occurrences when conducting audits. If the IRS discovers you misclassified any employees as contractors, the contractors are automatically reclassified and you may owe back payroll taxes (15.3% for Social Security and Medicare (FICA) and possibly 20% for income taxes) and penalties of $1,000 per misclassified worker; you could also get a year in prison.

Be sure that you’re not setting your contractors’ work hours or controlling how they perform their work; otherwise, they should probably be employees. It’s also a good idea to check whether your state has specific contractor classification tests, like California, that you can follow to ensure you comply.

New Hire Reporting for Independent Contractors

Federal law doesn’t require new hire reporting for contractors, but some states do. These states match the reports against their child support records to locate parents, establish a child support order, or enforce an existing order. All laws differ, so it’s best to check your state’s website for specifics.

Here are the states that require businesses to report independent contractors with a link to the new hire reporting portal or other relevant site:

Federal Laws on Paying Independent Contractors

Generally, you aren’t required to withhold taxes from an independent contractor’s pay. They are obligated to pay their own contractor taxes. However, if you’re unable to gather their Social Security Number (SSN) or Tax Identification Number, you’ll need to withhold 24% from each payment to remit for taxes.

The IRS requires you to collect your contractors’ identifying information, like name, SSN, and address (usually on Form W-9), at the time of hire so you can file the 1099 tax form at year-end with ease. 1099 reports all contractor earnings for the year. You’ll send a copy to each contractor, the IRS, and your state tax agency. This ensures the tax agencies are aware of who should be paying their own taxes.

Need help paying your independent contractor? Check out our guide on how to pay contractors.

Bottom Line

Hiring independent contractors requires analyzing the work you need to be completed so you can determine the best professional for the job. You’ll spend time researching different options and strive to choose the best one based on cost, ability, and ease of use. Understanding federal laws is also important so you avoid penalties and taxes.