How to manage independent contractors: the complete guide

Working with independent contractors is a great way to scale your business and leverage the expertise of experienced subject matter experts.

But managing contractors across the globe can be a challenge. As well as the logistics of paying multiple workers in multiple countries, you have to be aware of — and comply with — countless local tax and labor laws. Sounds daunting, right? 

Well, it doesn’t need to be. It’s entirely possible to manage your contractors without becoming a cross-border legal expert, and in this guide we’ll show you how.

Specifically, we’ll explain how to:

• Get the most out of your contractor relationships

• Monitor and reduce misclassification risk

• Convert your contractors into employees — wherever in the world they’re based

So, let’s begin.

How do I hire an independent contractor?

Before you get started, you should have a robust recruiting process in place. Your company should be able to identify when it’s appropriate to work with a contractor, and when it may be more advisable to hire an employee.

This isn’t just for practical reasons, but for compliance reasons, too. When you hire a contractor, you can expose yourself to potential misclassification risk (which we’ll discuss further in this article).

It’s important to manage this risk effectively, either through your company’s in-house legal team, or by working with trusted, experienced compliance experts like Remote.

To learn more about how to hire contractors safely and compliantly, check out our dedicated contractor hiring guide.

How do I work with an independent contractor? 

Once you’ve identified, hired, and onboarded a contractor, you need to ensure that you maintain a positive working relationship.

When you’re working with remote contractors, this can be tricky. To smoothen out the process, here’s a few pointers. 

Set clear expectations

When you take the time to set clear expectations, you’re more likely to receive deliverables that align with both your vision and your timeline. 

At the start of the collaboration, outline and document exactly what you want. Go into as much detail as possible about what the end result should be, but refrain from giving specific instructions. This will give your contractor a clear structure to work with, and creates a solid foundation for assessing their performance.

Build connections with your team

Developing positive relationships with independent contractors can be more challenging than with your employees. Sometimes — if you’re collaborating on a short, one-off project, for instance — this is fine. But if you’re collaborating regularly with certain contractors, then it’s worth attempting to build a more meaningful connection.

Check in regularly with your contractor and even consider providing extra perks if you’re happy with the work they’re doing. Be careful, however, not to trigger a misclassification risk.

Don’t micromanage

Independent contractors are subject matter experts in their respective fields. As a result, if you try to micromanage their tasks, workflows, or schedules, they are not likely to respond well.

You can still check in to see how projects are coming along, of course, especially if something is time-sensitive. You can also ask if the contractor requires any other support. But refrain from interfering in your contractors’ actual day-to-day work, and don’t ask for updates every other day. The contractor will be unlikely to want to work with you again or, in extreme cases, may even walk away from the project.

Provide feedback where relevant

Setting aside time to give a contractor constructive feedback can help them learn and develop new skills.

Take the opportunity to review the work of your contractor, just as you would your employees. This helps to nurture a positive working relationship, and improves the quality of the contractor’s work. 

Respect the contractor’s flexible nature 

Independent contractors often work with multiple clients on multiple projects — as is their right. If you've set project budgets and deadlines, trust that your contractor will respect those agreements. 

While it's reasonable to want consistent communication with your contractor, remember that they are not your employee. They are not required to respond to you within a specific time window (within reason), or be available to you at all times during business hours.

How do I work with contractors in different time zones?

If you’re working with international contractors in a different time zone, then there are a couple of other things you can do to create a positive relationship. For instance:

Over-communicate as a default

It’s a common cliche that, in remote teams, it’s “impossible to over-communicate.” But with remote contractors, there is a fine line. As mentioned, contractors are independent SMEs, and they won’t appreciate you bombarding them with communications.

However, most people still tend to under-communicate, which can lead to problems. When you’re working with a remote team, the kind of casual communication that is common in an office environment doesn’t happen as easily — if at all. That’s why it’s important to schedule regular updates with your contractors, preferably through asynchronous channels.

When you over-communicate, it ensures that everybody is on the same page, and minimizes the risk of mistakes and misunderstandings.  

Leverage asynchronous work

You pay contractors to perform tasks because they already know how to do them well, without excessive oversight. Which, in turn, means that you can step back and collaborate asynchronously. But what exactly does this mean?

On the surface, “working async” means that, even though they are in the same team, people work on their own schedule and are not required to be immediately available. With less interruptions, it allows teams to be more productive, and is ideal for globally dispersed teams in different time zones.

However, this only works if everybody is on board and aware of how to work asynchronously. You should educate your contractors about some of the core tenets of async work, such as:

• Multiplexing: Working on more than one project without waiting for others.

• Communication: Using the right communication tools for the right circumstances..

• Action: Always defaulting to action, even if a supervisor isn’t there to tell you want to do.

The expectation that everyone on a team should take action creates a feeling of trust, and this is especially true with contractors. After all, you hired them for a reason, and you should trust them to make appropriate choices, take relevant action, and do the job effectively. If you can’t trust your contractors, you either need to set clearer expectations or consider hiring new ones.

Document everything

Asynchronous work relies on one key thing to function efficiently: documentation.

Documentation is anything written down in a place where your contractors and employees can read it, learn from it, and build upon it. When you’re working with a remote team, everything that doesn’t contain sensitive information should be publicly accessible. This creates a base of knowledge that your entire team can draw from.

Of course, you may not want to give contractors full access to your entire library of documentation. But you should certainly share important pages and documents on an individual basis, and lean on that documentation to work more efficiently with your remote contractor team.

How do I pay an independent contractor?

Issuing payments is a very important part of contractor management. You should have established the method and currency of payment for each contractor in your initial contractor agreement.

There are numerous ways for contractors to get paid, each with their own pros and cons. Some of the most common include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services (like PayPal and Wise)

Alternatively, you can easily set up and manage payments with Remote.

To learn more about how to pay independent contractors — including how we can help — check out our dedicated contractor payment guide.

What are my tax and compliance obligations?

Independent contractors are (in most cases) self-employed. As a result, they are responsible for managing and handling their own taxes and social contributions.

However, in some countries and instances, your company may be responsible for:

• Withholding certain taxes from payments.

• Filing VAT reports (usually when your contractor’s annual income exceeds a certain amount).

• Filing country-specific paperwork. For example, if you work with a US-based contractor, you will need to submit a 1099-NEC form, even if your company is not based in the US.

To ensure that you’re aware of and compliant with any such requirements, it's essential to have an understanding of the local tax and labor laws in your contractors’ countries — especially as you scale and hire contractors in new countries.

To do this, you can work with third-party tax and law firms in each of your contractors’ countries. But it’s far easier — and more cost-effective — to partner with a global HR provider, such as Remote.

Our in-house, on-the-ground legal experts monitor tax and labor laws in every single country that we operate in, ensuring that your company remains compliant at every step. 

What is misclassification risk — and how do I manage it?

As mentioned, misclassification is a significant risk when working with contractors, and is something you constantly need to be aware of.

Broadly speaking, misclassification occurs when you treat your contractors like employees. For example, if you dictate the contractor’s working hours, provide tools and equipment, or offer benefits such as health insurance, these are hallmarks of an employer/employee relationship — not a contractor/client one. As a result, you would be creating misclassification risk.

Governments all around the world are actively clamping down on contractor misclassification, whether it’s intentional or not. Misclassifying a contractor can result in fines, penalties, and reputational damage, as well as the back pay of taxes and social contributions (with interest).

Therefore, it’s crucial to work closely with a global HR partner to monitor and mitigate this risk in all of the countries your contractors are operating in.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I convert a contractor into an employee?

There are a number of reasons why you may want to convert a contractor into an employee. For instance:

• The contractor is performing well in their role, and you want them to work exclusively for you

• You are running an active misclassification risk

• You want the contractor to become a bigger part of your company

• The contractor has requested it 

Alternatively, you may be obliged by law. In some countries, contractor agreements automatically turn into employee agreements after a certain amount of time.

Whatever the reason, it’s entirely possible to convert a contractor into an employee. However, you must ensure that the process is compliant with local labor regulations, in both your country and the contractor’s. 

To learn how to safely and efficiently convert a contractor into an employee, check out our dedicated, in-depth guide.

How do I terminate the contractor relationship?

If you want to terminate an employee, then there are strict legal procedures that you must follow. With contractors, however, things are a little more straightforward.

If the contractor has been hired for a one-off project, the process is simple. As soon as the task has been completed and payment has been made, the contract is settled and the agreement is over.

If it’s an ongoing agreement with no specified end date, then the key is to stipulate your — and the contractor’s — termination rights in the initial agreement. Unlike with employees, there is usually no notice period, and you do not necessarily need to provide a reason for ending the relationship.

Conversely, your contractor is also free to walk away at any time, provided this is stipulated in the agreement.

Managing independent contractors with Remote

Managing and paying independent contractors can be complicated — especially if they are based abroad. You need to navigate local labor law, misclassification risk, and international payments, all while trying to maintain positive working relationships.

This is why it’s highly recommended to work with an experienced, knowledgeable contractor management partner, like Remote. Our simple, all-in-one platform allows you to hire, pay, and manage contractors at scale, removing all the murky legal uncertainty from the hiring process.

Specifically, Remote enables you to:

• Mitigate misclassification risk and comply with local labor laws around the globe

• Have the groundwork in place to build and execute an international hiring plan

• Pay contractors in multiple currencies all over the world — in just a few clicks

• Convert independent contractors into employees 

To learn more about managing independent contractors, check out our free, in-depth international contractor management guide.

Alternatively, speak to one of our friendly experts to see how Remote can support your international hiring needs — and start growing your business today.