Determining how to hire independent contractors can feel confusing. You might find yourself getting lost in the differences between IRS tax forms like form 1099-NEC vs. form 1099-MISC, puzzled by slight nuances in state laws, or winded by the idea of developing a solid short-term contract that would hold up in court.

If you’re interested in hiring international candidates, these compliance stressors are likely doubled in magnitude as you think about currency conversions, global labor laws, and what other unknown steps might be involved.

However, hiring independent contractors to perform pieces of your organization’s work is often simpler than hiring employees—especially when you have the right tools to help.

Preparing to hire an independent contractor: How it's done

Hiring an independent contractor requires administrative preparation that looks different from the full-time hiring process. Before advertising your open contract position, consider the following steps to ensure a more seamless experience for both you and your candidates.

Clearly define the scope of work

You can set yourself up for a good working relationship by ensuring that you and your candidate are on the same page about expectations for the role. One way to do this is to document a “scope of work,” which details the type of work that will be completed under your independent contractor agreement, specific deliverables, how performance will be measured, and payment terms.  

Having these expectations documented up front can help prevent misunderstandings and disagreements down the line and help both parties measure progress throughout the engagement.

Identify the job requirements

Once you have a scope of work defined, you’ll need to list out requirements for the role that can be noted in the job description. Types of job requirements to consider include the following:

• Necessary skills: Be sure to list any hard or soft skills the role requires, as well as specialized knowledge such as coding or speaking a foreign language.
• Experience level: Mark whether you’re looking for someone who is entry-level or who has a specific amount of experience in your industry, such as three to five years of experience in sales.
• Availability: Independent contractor roles vary widely in availability expectations, so make sure you outline how many hours you expect someone to work per week and whether you need them to be available during specific hours in a designated time zone. If the work can largely be done independently at whatever time the candidate prefers, mention that too.
• Geographic location: Will your job only be available to U.S. applicants, or are you open to international applications? If so, from which countries? List any limitations in your description.
• Potential ad hoc tasks: Mention any other tasks the individual may be asked to perform. For example, if you’re hiring someone to build a website for you but also need them to present their progress weekly in leadership calls, you should mention that as a requirement. 

Establish a budget

Independent contractors’ pay rates can be all over the board. It’s a good idea for you to set your own budget before soliciting quotes from self-employed contractors.  

Do market research for reasonable rates in your industry so you know what’s fair and competitive. For example, you may look at a resource like PayScale to find average hourly rates for different job titles in a specific industry, such as software development.

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Remember that you typically get what you pay for. Just because someone’s rate is lower than others’ doesn’t mean they’re going to be the best choice for your needs. They may not even end up saving you money if it takes them longer to do the work than someone at a higher rate.

Create a detailed contract

Having a comprehensive, carefully-worded contract is critical for any independent contractor relationship because it protects your business from risks associated with bringing in an outside vendor. 

Your independent contractor might have access to trade secrets, confidential information, or other economically advantageous intellectual property that could irreparably harm your business if it was shared. Thus, a non-disclosure agreement (NDA) should be a key clause in your contract.

A contract also ensures the independent contractor understands exactly what their role is for tax purposes and in relation to the company. It should clearly state that the contractor is not a full-time employee and that no employment benefits, such as health insurance or workers’ compensation, will be provided. 

It’s also important to acknowledge that any tax withholding, payroll taxes, Medicare taxes, and other tax obligations are the sole responsibility of the independent contractor and not the company. Instead of paying employment taxes, the contractor will pay income tax and self-employment taxes.

Essential contract clauses will vary based on the type of partnership you’re establishing, local state laws, your industry, and other variables. That’s why you should seek professional or legal advice to make sure you’re fully covered before executing any contract.

Technology dedicated to making international hiring compliance easier can also help bring you peace of mind. For example, Thera’s platform includes built-in contracts that are locally compliant for individuals in more than 150 countries and all 50 states.

How to hire independent contractors step by step

Once you have your paperwork sorted, it’s time to start seeking the right vendor partners for your business. Here are the basic steps you need to approach the hiring process.

Search and shortlist candidates

There are a number of ways you can seek out independent contractor applicants these days. Here are a few options:

• LinkedIn Jobs: Create a job listing on LinkedIn to show you’re hiring. LinkedIn lets you categorize the job as freelance, contract, part-time, or all of the above. This means it will show up in the search results of individuals looking for that type of work. Ask your network to help spread the word.
• Freelance marketplaces: Platforms like Upwork and Fiverr exist solely to connect businesses and independent contractors around the globe. You can post your job and have freelancers bid on it with their applications and pay rates.
• Online job boards: Digital job boards like Indeed.com, ZipRecruiter, and FlexJobs offer another avenue for reaching new talent.

Assign a skill assessment or test

Depending on the type of role you’re hiring for, you may choose to have applicants complete a skills test to show how they’d approach a project similar to the ones they’d be working on. For example, if you’re hiring an editor, you might send them a proofreading test you created to see how well they catch errors.

Some assessments are short and only take up to an hour. If you decide to send a test that takes longer, it’s always a kind gesture to offer some form of payment to show freelancers that you value their time and expertise.

Interview top candidates

Once you’ve narrowed down your top candidates, assessed their skills, and conducted a background check, it’s time to schedule interviews. While there’s no hard-and-fast rule, it’s generally recommended to interview at least three candidates so you can compare and contrast each one fairly. 

To make the most of your time together, come prepared with questions ready to go. Aside from just asking technical or skills-based questions, be sure to add some that also let their personality shine through.

Negotiate terms and final offer

Just like when hiring full-time employees, hiring contractors often involves some negotiation of payment terms. Once this is settled and a final offer is agreed upon, you can put all details into your pre-drafted contract for both parties to sign. Be sure to include an execution date and termination date, if applicable.

Set up onboarding and a contractor management system

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The rest of the hiring process takes place behind the scenes as you determine the best ways to handle invoicing, time tracking, compliance, and payroll. If you hired an independent contractor from another country, you may need to find a contractor management system that offers different payout methods and low foreign exchange fees to avoid underpaying your contractor.

Switching to another payroll provider may seem like overkill when you’re just starting to hire contractors. But, if you plan to continue working with outside vendors, it can save you a lot of money and headaches down the line to do it sooner than later.

Enjoy the benefits of working with independent contractors 

Between 2022 and 2024, the number of full-time independent workers in the U.S. grew by more than 6 million people, and for good reason. More employers have begun to see the benefits of hiring independent contractors, making demand for them higher than ever. 

Aside from significant cost savings, benefits of hiring independent contractors include the following:

• Increased flexibility: If you’re a startup or small business, you may have fluctuations in your workload. Freelancers offer a flexible staffing option to cover busy seasons without a need to be paid during slower seasons.
• Larger talent pool: Working with an independent contractor can provide access to specialized skills you may not have available in house.
• A fresh perspective: Freelancers often have experience working with a lot of other companies in your field and can bring new ideas to your team.
• Higher-quality work: Independent contractors have an incentive to efficiently deliver high-quality work because their business depends on it. This can sometimes result in better-quality work than what may have been completed in house.

3 pitfalls to avoid when hiring independent contractors

While working with an independent contractor may seem like a no-brainer, there are some things you need to be careful of in order to do so compliantly. A few big mistakes some companies make when hiring contractors include the following.

1. Misclassification

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Misclassifying someone as an independent contractor when they should’ve been classified as an employee can lead to serious legal trouble and penalties by the Internal Revenue Services (IRS). According to the Department of Labor, employees are entitled to certain protections that freelancers aren’t, such as minimum wage. 

If you misclassify, you’ll likely be charged back taxes for the employee due to incorrect worker status and back wages, including overtime. You may also be fined for not filing a W-2 form since you likely asked them for form W-9 to issue a 1099. A misclassification can also lead to lawsuits from the worker for unpaid employee benefits. 

2. Not having a contract

Not having a signed contract isn’t just bad business management—it can also be a compliance issue. In some locations, contracts are mandatory to remain compliant with local laws.

For example, the New York State Department of Labor passed a law called the “Freelance Isn’t Free Act,” which requires that the hiring party provide a written contract to a freelancer for any work valued at more than $800.

A contract is also what protects you, your business, and any intellectual property that belongs to your business, so you should have one regardless of whether it’s mandated.

3. Seeking too much control

One thing that distinguishes a contractor from an employee is the degree of control the individual has over their work. An independent contractor should have the ability to set their own hours, decide where they work, and determine the methods they use to work. 

If you try to control these things by asking someone to work the hours of 8 a.m. to 5 p.m. or to come into an office, you may inadvertently end up classifying them as an employee.

How tech can make contractor hiring easier

Hiring independent contractors doesn’t have to sound scary or become another headache on your unending list of to-dos. Just like in other corners of the HR sphere, new technology is making it easier than ever to compliantly hire, onboard, and pay contractors from all over the world. 

For example, Thera is a single platform that lets you offer locally compliant payments to individuals in more than 150 countries and all 50 states through five different payout options. It offers quick onboarding (in as little as 24 hours) and legal protections for international hires. It keeps contractors happy and enables you to streamline payroll with bulk payments in a single click. 

Don’t spend endless unnecessary hours on admin. Book a demo and see how Thera can make the hiring and onboarding process painless.