The rapid growth of the freelance industry has provided small business owners with exactly what they need to grow themselves–affordable, flexible staffing options.

Many small businesses can’t afford to employ their own payroll departments, content writers and designers, or IT support teams in house. Luckily, now there’s a contractor for that. Bringing in contractors allows small business owners to grow and shrink staff as required depending on seasonal and budgetary needs. It’s not news that full-time employees are more expensive, but before you over-do the outsourcing, here are a few important things to keep in mind.



Get your arrangement in writing. A freelancer that is free to wreak havoc by being unreliable does more harm to your business than good.

When she asks troubled business owners to see the contracts they made with problem contractors, Jaia Thomas, L.A.-based attorney, often gets confused looks, “The facial expression I usually receive after asking that question would lead someone to believe I asked the question in Azerbaijani. Far too often entrepreneurs fail to formalize the terms of their arrangement with a freelancer.” Without a written agreement, you’re setting yourself and your contractor up for failure.

You don’t have to accrue legal fees to write something up. Thomas continues, “It doesn’t matter whether a contract is written with a luxurious pen or Crayola crayon. Just be sure to put it in writing so no misunderstandings arise once the freelancer begins the project. A contract will also prove instrumental should litigation arise. For good measure, consider keeping short, concise boilerplate contracts on hand that can be slightly modified for every new freelance assignment.”

Clear expectations set the whole team up for success.

What should you include in the freelancer’s contract?

Aside from what you pay, when, and how, you need to make sure the job is laid out clearly. First, what tasks do you intend the freelancer to perform? Be as specific as you can. Second, performance metrics. What does a successful job look like, and how often will you review those metrics? Third, if the contractor is creating content for you, make sure you have a “work made for hire” clause, which ensures that any content the freelancer writes or designs is yours, not theirs (think logos, slogans, ad copy). Once again, from Jaia Thomas: “Although freelancers are integral to the creation and upkeep of a business, ensure that they don’t walk away owning any key pieces to the company’s puzzle.” You should also specify whether or not the freelancer is allowed to use the work they do for you as a sample or claim their authorship in any way.

Working together willy-nilly only leads to trouble. The only question is when.


The IRS is Watching

There’s only so much wiggle room the IRS will give you when it comes to avoiding the costs associated with employees. There is such thing as overreach in this area. To avoid getting in trouble, the IRS gives some guidance as to what kind of job is appropriate for an independent contractor.

“Does the company control or have the right to control what the worker does and how the worker does his or her job?”

“Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)”

“Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)?”

“Will the relationship continue and is the work performed a key aspect of the business?”

If you answered “yes” to all or most these questions, the IRS may require that you pay employment taxes for those individuals. You can request “relief” from these requirements if you have a good reason for not treating the contractor as an employee.


Workman’s Comp and Liability

Do you employ independent contractors who work onsite? If so, your workman’s comp insurance probably does not cover them in case of a work-related injury. Since we are not lawyers and therefore not qualified to give legal advice, we’re not going to go into this in depth, but make sure you consider this and protect yourself.

Using independent contractors is a great way to fill the gaps and save money, but be smart about it. A freelancer should focus on the tasks that bring your business the most value–things that you or someone on your full-time team absolutely can’t take the time to do or isn’t qualified to do. If you’re not careful, you could end up costing yourself more in the long run.