The Dos and Don’ts of Working with IT Contractors
Failing to clearly classify IT contractors and full-time employees within your business can result in government audits and litigation. The IRS, state auditors, and other government agencies take the differences in tax responsibility for contract and full-time employees very seriously.
To avoid any legal complications, your company needs to know what you can and cannot do in practice while working with IT contractors.
What Happens When the Wrong Lines Blur for Contractors
Mislabeling the status of employees can be a costly mistake. Just look at Microsoft. In 2000, they paid out a $97 million settlement after a class action suit. Moreover, Microsoft hired more than 3,000 of those contractors on a full-time basis after the fact to save face.
The problem for Microsoft was that their contractors had open-ended contract agreements, more typical of full-time employees, but received none of the typical withholding and tax assistances. Yet a response of that magnitude would not have been necessary had Microsoft tread carefully while working with IT contractors.
UNC Charlotte’s Office of Legal Affairs puts it perfectly: “your goal is to avoid obvious misclassifications and narrow the area of uncertainty.” Here are tips that we feel will keep your business out of hot water with government regulators.
Do: Provide Clear Project Guidelines
The outset of any successful partnership requires clear orientation. Contingent workers need to be made aware of a project’s full scope of work where a full-time employee does not. Not only do clear guidelines reinforce that your IT contractor will be up to the task, but they prevent complications and disputes in the future.
Don’t: Assign Work Outside of Your Contract
Never try to convince an IT contractor to complete additional work outside of the original scope of work. As you would with any vendor, you need to draft up additional terms, fees, and signed agreements for legal purposes. Otherwise, your contractor begins to resemble a full-time employee, another damaging mistake that Microsoft made.
Do: Outline Project Timelines
Along with delineating clear project guidelines, you and your IT contractor need to establish equally transparent timelines. Since unfamiliar technology and techniques are often a reason to involve IT contractors, you can also get a good sense of the reasonable expectations for completing major project milestones. All timelines should be clear, upfront, and reiterated in any status meetings.
Don’t: Try to Dictate a Contractor’s Hours
Never dictate a contractor’s schedule. To outside observers, the line between your employees and contractors begins to blur. Of course, if one of your IT contractors needs to be collaborating with a member of your team or available for work on-site it’s not unreasonable to have them work in part within your schedule. Otherwise, you need to step back and allow them to complete the work using their methods.
Do: Show Occasional Gratification
Historically, companies working with IT contractors have treated them as if they were strictly drones on a mission. However, they need to be engaged as well. In that regard, extending a thanks or praise to your IT contractors is not a bad idea. If they are exceeding expectations, there is no harm in finding little ways to thank them. Thank you notes, gift cards, a dinner out, or other non-monetary rewards can be used without much legal concern. As long as you are not giving them the equivalent of a bonus, your business is in the clear.
Don’t: Cover Work Expenses
Travel? Equipment? Supplies? Those are all the burden of the contractor. Though you can write the other expenses off as a gift (as you could with any vendor), this type of compensation begins to fall under the umbrella of full-time compensation. The less you reimburse their expenses, the better. That compensation is built into their fees.
Want further information on how to handle IT contractors in your business? Download our Guide to NY IT Contractor Rates. Our eBook provides insight into keeping employee definitions straight as well as providing an in-depth look at contractor compensation in the New York metropolitan area.