This is part of my ongoing series of articles about setting up your own software publishing business (cause FileMaker is very good option for doing that). This was originally published by me in a guide called FileMaker Software Publishing back in 2002. .
I’m by no means an expert in this area. I suggest reading up on all you can find about contract employees, talk with professionals in the know about the issue and perhaps even give your local IRS office a phone call. I have spent time on both sides of the fence, as a contractor for companies and as an employer hiring contractors. In my experience, there is no magic mentality or process that will make every experience smooth as silk. It is a collaboration and the only truly essential element is honest, open and regular communication.
It is very common for a company to use contract employees instead of going through all the paperwork involved in hiring a real employee. It’s also much easier to let a contractor go than an employee. Normally, you will hire contractors directly or via an employment agency. Doing it yourself gives you more control and will likely save you money ( no middleman ) . An agency will have a larger talent pool to choose from, they will take care of the HR needs and may become a worthwhile resource as your needs expand or collapse.
Contractors you hire on your own are normally paid by the project or by the hour.
Project based employees are best for well defined projects with individuals you know that you can work with. It is also one of the preferred ways to work with contractors working in a home office of their own.
I would recommend building an extensive set of action items and break the payments up into milestones. This way both you and the contractor do not go too far into the project without reflection. Project based contractors allow you to forecast project costs better than hourly based contractors. However, I’ve had cases where I thought I did all the pre-work for hiring a project based contractor. I knew that the individual had the necessary skills to successfully complete the project. However, the end product delivered by the contractor wasn’t usable. The first mistake was that the individual was a friend. So when he didn’t show me his progress at the milestone dates, I didn’t want to endanger our friendship. The next mistake was that he thought this was more of a collaboration than a for hire agreement. So he made his own decisions about the interface, script design and navigation flow. These decisions were not what I was looking for. The end result was that I lost money, lost time redoing the work myself and didn't do our friendship any favors.
If your estimate on the amount of time is exactly right, consider yourself lucky. If you overestimated the amount of time, you may be overpaying the contract developer. However, if you budgeted a particular amount, you might be satisfied. The worst case is when you underestimated the time and the project based contractor is unhappy and productivity suffers. For this reason, you may want to leave a little extra room in the budget so that you can pay the project based contractor a little extra, considering that he/she deserves it.
Hourly based contractors should also have a well defined set of action items, milestones ( that are not linked to payment ) and perhaps a time investment log. This allows you to see how much time and money is invested on an action item basis. You see, project based contractors have an incentive to be productive. Some hourly based contractors don’t feel that productivity urge quite as strongly. For this reason, hourly based contractors are well suited to in house, so you can play big brother.
As your organization grows and evolves, you will want to hire employees. For example, if someone does everything that a full time employee would do, you should hire them as an employee. If you have full time employees that do exactly the same thing as full time contractors, you could get into legal hot water. If you have a long term contract employee and they do the same work as a regular employee ... they may eventually
take legal action for the past due benefits given a full time employee. It sounds odd but it happens all the time.
Regardless if you go through an agency or hire a contractor on your own, you should have them sign some basic agreement paperwork. It should say that they agree they are a contractor and not an employee. You may want to mention that they are responsible for their own tax payments. Be sure to collect their social security number just in case.
NOTE: I just checked www.nolo.com as I wrote this. They have sections on their website for both employee law and contract employees. It may be worth your time to investigate what they have to say on these issues and see if they have some sample paperwork you can have contract employees sign when they come to work for you.
More info about the author and FileMaker in general, contact me at email@example.com.
© 2008 - Dwayne Wright - dwaynewright.com
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