3 min read

Hiring and Managing Contractors: A Global Client's Guide

Contractor management


Michał Kowalewski


May 17, 2024

Last Update

July 11, 2024

Table of Contents

Understanding contractor work

Defining characteristics of contractors and employees

How to manage your team of contractors

Hire, manage, and pay contractors compliantly with Deel

Key takeaways
  1. Effective contractor management relies on proper classification and tax knowledge to minimize legal and financial risks while ensuring compliance with employment regulations.
  2. Hiring independent contractors provides businesses with cost efficiency, flexibility, access to specialized skills, and the ability to quickly adapt to changing project requirements.
  3. Utilizing different contract types, such as fixed-rate, pay-as-you-go, and milestone contracts, allows businesses to tailor employment terms to specific project needs and workloads.

Hiring and managing global independent contractors is complex as businesses must deal with local employment laws, international payments, diverse cultural expectations, and communication across time zones. Ensuring contractor performance and compliance without local expertise can lead to legal and financial risks.

This guide addresses these challenges with strategies supported by Deel’s extensive global experience and comprehensive contractor management solution.

By the end of this guide, you’ll learn how to:

  • Manage and optimize your global contractor workforce
  • Stay compliant with international legal standards
  • Enhance workflow efficiencies
  • Foster strong relationships with contractors
  • Equip your business with the tools to succeed in managing a worldwide network of contractors effectively

Understanding contractor work

From the client’s perspective, it’s important to know that independent contractors operate under their own business or trade name, offering services based on the terms specified in a contract or freelance agreement. Unlike traditional employees, independent contractors are autonomous, use their tools and methods, set their schedules, and are responsible for their business expenses and taxes.

Defining characteristics of contractors and employees

Independent contractors Employees
Autonomy Not subject to the employer’s control regarding how they complete their work; responsible for the outcome Subject to the employer’s control and direction in how work is performed, often with specific instructions and supervision
Tools and methods Typically, they use their tools and methods to complete tasks Employees must follow the employer’s prescribed methods and use employer-provided tools
Business model Operate under a business model that allows them to work for multiple clients concurrently Typically work for one employer at a time and may have restrictions such as non-compete clauses that limit working for competitors
Expenses and taxes Responsible for their business expenses and taxes Employers handle withholding taxes and cover employment-related expenses. Employees may have some job-related expenses reimbursed
Benefits Do not receive benefits such as health insurance or retirement plans from their clients Receive benefits like health insurance, retirement contributions, and other perks as part of their employment package
Legal coverage Not covered by employment and labor laws that protect employee rights, they must arrange their coverage Covered under employment and labor laws, which provide protections such as minimum wage, overtime pay, and workplace safety
Contractual terms Work terms are governed by the contract agreements they enter into with the businesses that hire them Employment terms are often governed by a combination of contracts, company policies, and labor laws that dictate terms of employment, termination, and duties

📖 Read more about the key differences between an independent contractor and an employee in the United States

Benefits of hiring contractors

Hiring independent contractors offers several benefits for businesses, particularly in fast-paced industries or those with changing work demands. Here are some key advantages:

  • Cost efficiency: Contractors help reduce expenses like payroll taxes and employee benefits. Since payment is project-based or short-term, it’s often more affordable than a full-time salary setup.
  • Flexibility: Contractors allow businesses to adjust their workforce size quickly to meet project requirements. This flexibility is essential for responding promptly to market shifts or project changes.
  • Specialized skills: Contractors often have high-level expertise and provide fresh insights that may not be available internally. Their specialized skillset is especially valuable for specific projects needing expert input.
  • Reduced liability: Contractors are not classified as employees, which means fewer legal responsibilities for the company. This can lower the risk of issues such as wrongful termination claims or other employment-related legal matters.
  • Innovation and speed: Independent contractors can start work immediately and often bring innovative solutions and a proactive approach to projects. This work style is driven by the nature of contract work, which emphasizes quick project completion and high performance.

Hiring contractors: Compliance and legal considerations

The legal aspects of employing independent contractors can be complex and differ greatly between regions. Misclassifying an employee as an independent contractor may result in severe penalties, including the need to pay back taxes, benefits, and fines. Here are some important legal factors to consider:

  • Employment laws: Clearly distinguish between contractors and employees to avoid penalties. Utilize classification tools to ensure compliance.
  • Contractual agreements: Create contracts that clearly define the relationship, scope of work, and payment terms, adhering to local laws.
  • Tax obligations: Be aware of your responsibilities for issuing necessary tax documents to contractors.
  • International considerations: Comply with legal and tax regulations in both the contractor’s and your own jurisdiction, especially for cross-border payments.
  • Dispute resolution: Incorporate efficient dispute resolution methods, such as arbitration, to minimize legal hassles.

Tip: Use Deel’s misclassification assessment to mitigate compliance risks and ensure you’re classifying your workers correctly.

The information provided in this article is intended for educational purposes only and should not be used as legal advice. Compliance requirements vary by jurisdiction, and it is essential to consult with qualified legal and compliance professionals to ensure adherence to all applicable laws and regulations.

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Sourcing and hiring contractors

The first step in leveraging independent contractors is sourcing the right talent. In the current talent market, businesses can easily tap into a diverse pool of skilled professionals from all over the world. Here are key methods to identify and engage these valuable resources:

  • Online freelance platforms: Access a wide range of contractors through general and industry-specific platforms that simplify vetting, contracting, and payments

  • Professional networks: Utilize networks like LinkedIn to post your contracting needs or to search for professionals with the specific skills you require

  • Industry conferences and meetups: Engage with top-tier professionals and industry leaders by attending relevant conferences and meetups, either in-person or online

  • Referrals: Tap into your professional network to get referrals, ensuring you connect with trusted and pre-vetted contractors

  • Social media: Explore platforms like X and Instagram to find creative professionals who often showcase their portfolios online.

The vetting process for independent contractors

Once contractors are sourced, it’s important to vet them to ensure they meet the project’s requirements and maintain your organization’s standards. Here’s what a thorough vetting process should include:

Step 1: Portfolio Review: Assess the quality and relevance of their previous work to gauge their skills and adaptability to different projects.

Step 2: References and Testimonials: Contact previous clients or employers to confirm the contractor’s reliability, work ethic, and ability to meet deadlines.

Step 3: Skill Testing: For roles specific to your needs, consider requesting a trial task or project to evaluate the contractor’s abilities and suitability.

Step 4: Interviews: Conduct interviews to assess technical and soft skills, such as communication and compatibility with your team’s culture.

Step 5: Background Checks: To ensure security and regulatory compliance, perform background checks, especially for sensitive information roles.

How to manage your team of contractors

Effectively managing remote contractors involves more than supervising their tasks; integrating them into the team and providing the necessary support to ensure they are productive, engaged, and secure. Here is a step-by-step breakdown of how to reach the optimal stage when managing a team of international contractors.

Set clear expectations

  • Project briefs: Provide detailed briefs outlining project scope, deadlines, and specific requirements before work begins to serve as a reference for all tasks

  • Regular updates: Establish a routine for updates to track progress and make necessary adjustments, specifying the frequency and format of progress reports

  • Quality standards: Communicate the expected quality of work, using examples or benchmarks to set clear targets

  • Roles and responsibilities: Define roles explicitly, especially when contractors need to interact with internal teams, to prevent confusion and streamline communication

  • Feedback mechanisms: Set up a structured process for timely and specific feedback to help contractors understand areas for improvement or strengths.

Build a collaborative environment

  • Communication platforms: Use tools like Slack, Microsoft Teams, or Zoom for straightforward communication, which support instant messaging, calls, and file sharing

  • Project management software: Implement tools such as Asana, Trello, or to monitor project timelines, assign tasks, and manage deadlines

  • Document sharing: Employ cloud-based tools like Google Drive or Dropbox to ensure real-time access to the latest documents and foster effective collaboration

  • Regular check-ins: Schedule consistent meetings to discuss progress and address challenges, which also help build rapport and ensure alignment

  • Cultural awareness: Be aware of and respect cultural differences in communication styles to avoid misunderstandings and enhance working relationships

Provide continuous support and supervision

  • Straightforward onboarding: Provide an in-depth onboarding process that acquaints contractors with your company’s culture and processes, possibly including virtual tours and introductions to key team members
  • Technology access: Equip contractors with necessary technologies and software for their tasks, especially specialized tools
  • Performance tracking: Use clear performance metrics relevant to their roles, ensuring these are communicated and reviewed consistently
  • Inclusion efforts: Include contractors in team meetings and informal gatherings to foster a sense of belonging and enhance motivation
  • Security protocols: Ensure contractors adhere to your company’s IT security measures to protect sensitive information
  • Dedicated contact: Assign a specific point of contact, such as a manager or project leader, for regular communication and support. This person will also evaluate the contractor’s performance and facilitate their integration into the team

How to pay independent contractors

Establishing transparent and fair payment terms upfront is crucial for a positive working relationship with contractors. Clear terms align both parties on payment schedules, amounts, and conditions, preventing disputes and confusion. Here are the typical payment terms between clients and contractors:

  • Fixed-rate payments: Agree on a fixed rate for the project scope, paid in regular cycles, suitable for predictable workloads
  • Advance payments: Use advance payments to secure commitment, typically ranging from 10% to 50% of the total fee
  • Milestone payments: For long-term projects, release payments as project stages are completed to maintain momentum and provide steady income
  • Final payments: Specify when final payments are due, usually upon project completion, to prevent delays.
  • Late payment terms: Include penalties for late payments to encourage timeliness and cover related costs

📖 Read more about how Deel can help you streamline contractor payments.

Invoicing procedures

Efficiently managing invoicing with contractors involves clear communication, organization, and the use of appropriate tools. Here are some steps to help streamline the process:

✔️ Step 1: Provide a standard invoice format that outlines necessary details such as the date, invoice number, detailed description of services provided, the total due, and payment due date. This standardization helps maintain records and quickens the payment process.

✔️ Step 2: Specify how and when invoices should be submitted, such as through email or a financial system, and the frequency of invoicing (e.g., weekly, monthly, or at the end of a project).

✔️ Step 3: Clarify who in your organization is responsible for approving invoices and how long the approval process typically takes, so contractors know when to expect payment post-approval.

Tax obligations when hiring contractors

Managing tax obligations effectively is key to working with contractors, particularly in international contexts.

  • Withholding taxes: In some countries, companies must withhold taxes from contractor payments and remit them to local tax authorities. Understanding these requirements is crucial to avoid penalties for under-withholding

  • Reporting requirements: Companies may need to file reports with tax authorities detailing payments to domestic and foreign contractors. These reports are essential for tax compliance and proper documentation

  • Contractor’s tax responsibilities: The contract states that contractors are responsible for their income taxes. This avoids misunderstandings and legal issues

  • VAT/GST obligations: If VAT or GST applies, understand whether you need to charge this tax on top of payments and how local laws handle it.

Insurance and Liability

Insurance and liability considerations are crucial in managing risk when working with contractors, especially if you plan to use contractors to work with important sensitive data.

  • General liability: Ensure contractors have liability insurance for third-party injury or damage
  • Professional indemnity: Professional indemnity insurance is required for contractors providing expert advice and covering legal costs from professional errors
  • Cyber liability: If applicable, cyber liability insurance is critical for contractors handling sensitive data
  • Errors and omissions: Protect against financial losses caused by errors in the contractor’s work with appropriate insurance
  • Product liability insurance: If contractors are involved in the manufacturing, distribution, or sale of products, product liability insurance is essential. This protects against claims related to product defects that cause injury or harm
  • Contractual liability insurance: This covers liabilities one party assumes on behalf of another via a contract. It's important when contractors are required to indemnify the hiring company against specific types of liability as part of the contract terms
  • Workman’s compensation: In some jurisdictions, even contractors may need to be covered under workman’s compensation. This typically depends on how much control you have over their work and their integration into your team

Hire, manage, and pay contractors compliantly with Deel

Deel is a market leader in contractor management that offers a robust platform designed to streamline the management of international contractors. Serving employers across more than 150 countries, Deel simplifies complex processes involved in hiring and managing global teams.

Contract flexibility

Employers can choose from three main contract types to best suit their project’s needs:

  • Fixed rate contracts: Ideal for consistent workloads with stable payment cycles (weekly, bi-weekly, or monthly)

  • Pay-as-you-go contracts: Suitable for projects with fluctuating hours. They pay based on actual hours worked or tasks completed

  • Milestone contracts: Designed for project-based work, with payments issued upon completion of predefined milestones.

Automated compliance and payments

Deel's automated compliance system adheres to local tax laws and regulations, reducing administrative burdens and risks for employers. The platform supports various currencies and payment methods, ensuring smooth and timely global payments. Contractors have real-time access to payment statuses and contract details, enhancing transparency and trust.

Efficient onboarding and management

Deel streamlines the onboarding process with legally vetted contracts that can be signed digitally. Its user-friendly interface makes managing multiple contractors straightforward and efficient.

HR and payroll integration

Deel integrates with existing HR systems, allowing HR teams to manage contractor details alongside traditional employees. This integration extends to payroll systems, ensuring efficient payments across different countries and currencies.

Misclassification shield

Deel's Misclassification Shield protects businesses from the financial and legal repercussions of misclassifying employees as contractors, ensuring compliance with local labor laws.  

Contractor benefits and perks

Deel offers contractors various benefits and perks to enhance their work experience:

  • Automated invoicing: Simplifies billing, saving time and reducing errors

  • Tax management: Provides tools for efficient tax handling

  • Fast access to funds: Ensures quick and reliable payment processing

  • Deel card: Offers immediate access to earnings with a globally usable card

  • Flexible payments: Allows multiple payment options and schedules

  • Health insurance: Offers options for essential health coverage

  • Community access: Connects to a network of remote service providers for community and shared knowledge

Discover how Deel can transform your contractor management experience. Streamline hiring, ensure compliance, and simplify payments globally. Schedule a call with our experts today to see Deel in action and take the first step towards efficient and compliant international workforce management. Request a demo today.

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