For legal reasons, contractors cannot be managed and offered the same benefits as employees. The laws around this vary by country but the result of mismanaging contractors is similar: Tofugu could be fined for misclassifying workers. In other words, if we cross the line in terms of treating contractors too much like employees, we could be found guilty of misclassifying them.
The definition of misclassification at a basic level means hiring someone as a contractor when the government might actually classify them as an employee.
Why would an employer hire someone as a contractor instead of as an employee? Reasons range from cost (employer costs for employee benefits and taxes can be as high as 35-40% in some countries) to needing flexibility. If a business doesn’t have a consistent amount of work for a team of 10 people, for example, they may choose to hire contractors for those times when they need to staff up, like holiday and seasonal businesses do.
An employee receives employer-paid benefits, such as health coverage, education reimbursement, monetary bonuses, and other perks.
An (exempt) employee generally doesn’t get paid hourly and is not eligible for overtime pay.
An employee is eligible for paid time off (holidays, sick days, federal holidays).
Equipment that employees need to do their job is generally provided (paid for) by the company.
Managers may coach employees on a career path and promote them to other positions.
A contractor is not eligible for employee benefits and is not covered by an employer-sponsored health plan.
A contractor is generally paid hourly, including for overtime hours, though an employer can cap the number of hours a contractor works.
Contractors are not eligible for paid time off.
Contractors generally need to provide their own equipment. Companies cannot dictate what equipment they use to do their jobs.
Contractors cannot be told how to execute on a job, nor can they be given career coaching as part of their job.
Since employers aren’t supposed to be dictating how contractors get work done, conversations with them should focus on the end goal: what needs to be achieved and by when. It’s important to communicate the level of quality that’s expected for the delivered project, and it’s up to the contractor to figure out how to make that happen.
While managers cannot have performance reviews with contractors, it’s still important to provide regular, documented feedback. If a contractor is or is not delivering what you have communicated, they need to know. This could include showing up to a shift on time or completing a project with a high level of accuracy. Just remember to let them know what that expectation is and document it in email, meeting notes, project notes, etc. If we do have to let a contractor go for performance issues, we don’t want them to be surprised that their performance didn’t meet expectations.