Hiring contractors offers business owners many benefits – organisational flexibility to staff up and bring in new skills quickly, but with lower overheads and fewer responsibilities than recruiting new employees, for example.
While most contractors are highly skilled, experienced professionals in their field, they are as vulnerable to making errors and mistakes as any other person. However, the way you handle mistakes by a contractor will be different to how you would treat an employee under the same circumstances. With an employee you have the option to take disciplinary action and ultimately to terminate their employment. With contractors, however, the process and outcome will depend largely on the relationship you have forged and the contract you have with them.
Managing good client/contractor relations
Establishing and maintaining good client/contractor relations is vital. Building an open and honest relationship from the start of a contract is key to its successful completion. It is important for both sides to have a clear understanding of the contract’s objectives, needs, challenges and constraints, and to discuss how each party will work with the other.
Regular reviews of progress and mutual feedback should take place throughout the contract to prevent any misunderstandings and resolve any issues.
However, where a serious error has been made by the contractor and/or the relationship between you has broken down, it will be important to go back to the original contract.
The importance of having a contract
The negotiation phase of any contract is crucial. The main items that need to be mutually stipulated in the contract document are the length of the contract, the services the contractor will provide and the pricing and payment arrangements. Make sure the contract, NDA (non-disclosure agreement), service agreement, schedules and any other required documents are clear and legally binding. The contractor should also have a full written description of their role.
Also ensure that the contract is IR35-friendly. As such it should reflect that the contractor does not have the same responsibilities, control and benefits as a permanent employee. The introduction of IR35 by HM Revenue & Customs was designed to stop contractors working as ‘disguised employees’. IR35 and the status of contractors is a complex area of employment law. It is therefore recommended to seek the expert advice of a specialist, such as an experienced business adviser.
Ensuring your contractor is insured
Mistakes happen but could end up costing your business a lot of money. By hiring only insured contractors you can be certain you won’t end up paying for someone else’s mistakes. If they make a mistake or fail to deliver the services they were contracted to, you will be able to recoup some of your expenses by making a claim against them.
As a separate business entity, a contractor is responsible for taking out their own insurance. There are generally two types of insurance that contractors should have:
- Professional Indemnity Insurance – this covers allegations of mistakes or breach of contract, and may also cover legal costs due to negligence or compensation to correct an error. This type of insurance is commonly specified as a requirement in many contracts.
- Public Liability Insurance – this covers incidents where a member of the public is injured or property is damaged as a result of the actions of the contractor or their employees.
How to hire a good contractor – a checklist
Here is a five-point checklist to help you hire the best contractor:
- Check their references
- Interview carefully
- Put everything in writing – the contract, service level agreement, timescales and payment schedules, non-disclosure agreement and so forth
- Provide a full description of the contractor’s role
- Ensure they are insured
At Approved Accounting we are experts in small business accounts, but we are also here to offer advice and guidance for our clients. Email Jon to find out more about how we go beyond your books and accounts.