Our company regularly hires contractors and freelancers to work on customer projects. And, in turn, our customers hire us as contractors to help them finish their projects.

So, we have years of experience on both sides of the table.

Managing contractors is a skill that can be cultivated.

We understand what it takes to hire, motivate, and retain excellent people who choose to work as contractors. And we understand what it means to be a contractor and help our customers achieve their goals.  

Based on this long experience, here are the 7 Best Practices we recommend to anyone contemplating hiring and managing contractors.

We follow these practices every single day and find them immensely valuable. And hopefully so will you.

7 Best Practices for managing contractors & freelancers

Here are the 7 highly proven Best Practices with which you can manage contractors and freelancers and get the most out of their engagement with your company.

  1. Understand their motivations
  2. Define Expectations in both directions
  3. Agree to clear Goals and Timelines
  4. Demonstrate how they fit into the team
  5. Value their work
  6. Give regular, actionable feedback
  7. Link compensation to performance

1. Understand their motivations

Why understand someone’s motivation

For any relationship to work, those in the relationship must understand each other’s motivations.

Your motivations in hiring a contractor or freelancer may be fairly clear to everyone. You have a project or a job, and you need resources to get it done. And you’re willing to pay. Your motivation is likely very transactional.

When you’re hiring a contractor, you’re not looking for another employee – otherwise, you would have hired an employee.

And you may already have employees and so only need some extra help to bridge a short-term resource gap.

Your contractor, on the other hand, may have motivations very different than yours.

They too may be interested in getting a job just to earn some money. But maybe not.

Maybe they are looking for a challenge or their primary interest is flexibility to be able to decide when and how to work. Or maybe they are looking for satisfaction in what they do and earning money is a secondary concern. Or perhaps they are looking to develop a new skill.

You must spend time understanding the contractor’s motivation. This will help you:

  1. Get clarity about the contractor’s expectations
  2. Structure the assignments you give them for maximum quality, productivity, and throughput.
  3. Define the best communication structure between yourselves
  4. Negotiate compensation packages including those based on performance and targets.

How to understand someone’s motivation

The best way to understand anyone’s motivations is to have a conversation (or several) with them and ask the right questions.

Here are some sample questions you could ask:

  1. Why have you chosen to work as a contractor and not as a full-time employee with some company?
  2. What do you expect to get out of this contract and the project we will work on together?
  3. Are you working for other customers at the same time?
  4. How would you define a successful relationship in the context of our partnership?
  5. How often would you like us to communicate?
  6. Is there a communication structure that would work best for you? Why?

Be careful: Remember that there are questions you cannot ask. These could be related to health, marital status, family situation, etc. Make sure that your questions are vetted by your local HR and Legal departments.

Once you understand your contractor’s motivations, you’ll be in a better place to set expectations.

2. Set Expectations in both directions

Setting clear expectations will reduce the risk of misunderstanding down the line.

It’s important to make sure that the discussion about expectations isn’t one-sided. While the contractor needs to understand your expectations from them, it’s equally important that you understand what the contractor expects from you.

Remember, that the contractor is a contractor for a reason. Understand why. Understand how much time they can commit to the job, the times of day that they can work, or work restrictions they may face.

Set expectations on work hours if necessary. Or agree to delivery schedules with milestones. This can be linked to the compensation structure you offer.

Make it clear that you have a job to get done and you’re counting on the contractor to deliver. Setting expectations is the baseline for agreeing to clear goals and timelines.

3. Agree to Goals and Timelines

Without a common goal, your contractor and the rest of your team will be marching in different directions.

Define goals that are SMART. Both you and your contractor need to agree to the goals and be clear what success looks like.

Be sure that the contractor understands the implications of failure – the implications to the team, to the project, to the company, and to the contractor.

Get them to make weekly work plans with a proper schedule.

Explain that adhering to timelines is critical. If it helps offer variable compensation in the form of bonuses for hitting targets or overachievement.

You may want to consider adding penalty clauses in the contract for missed targets, but this rarely helps. Invoking such clauses will almost certainly destroy your relationship with the contractor. And what you tend to lose as a company can never be fully compensated for by charging a small penalty to the contractor.

In most cases, the carrot works better than the stick.

4. Demonstrate how they fit into the team

Everyone wants to be a part of something bigger than themselves.

Contractors are humans too. Like everyone they will wish to belong, to be part of a tribe, a community. Make them feel a part of your team. And be sure to ask the rest of your team to make the contractor feel welcome and treated as a valued team member.  

Helping build interpersonal relationships between your contractors and your employees will be one of your most critical tasks. It’s the only way to make them function cohesively as one unit trying to accomplish a common goal.

Invite contractors to team events and other social activities you may do together with your colleagues. Of course, there will be some restrictions (including legal ones) that will prevent you from involving contractors in certain tasks. But involve and integrate them into your team as much as possible.

5. Value their work

Everyone wants to be valued. Contractors are no different. Just because your relationship with them is that of an external contractor and not an employee, it doesn’t mean that they are mercenaries who are only in it for the money.

Sure, some contractors will be in it for the money and nothing else. But many others will have other motivations. This is something you need to understand in Step 1.

In the end, Value lies in the eyes of the beholder.

Understand what your contractor values the most and then link this value to their work.

If you show them that you genuinely value their work, you will have on your team a motivated resource who is just as committed to achieving your common goal as you and your employees are.

6. Give regular, actionable feedback

Feedback loops are necessary for course corrections.  

Your contractors may or may not be in the same physical location as you and the rest of your team. They can be far away – even on another continent and they could easily feel disconnected from what’s happening on the ground.

Even if you try to integrate them into the team, they may not enjoy the same interpersonal relationships as your employees might do amongst each other. If this is the case, the contractors are not going to pick up any information through the grapevine. They will not automatically get a sense of where things are headed. There is a risk that they are cut out of the loop.

Compensate for that and communicate with them often. Give them regular feedback. If you don’t, they may not know if they are doing something wrong. They won’t be able to take corrective actions in time and that will hurt everyone.

Set up specific feedback sessions with your contractor. Make sure your feedback is actionable. Keep it unambiguous. If necessary, make keep it prescriptive so that there is no miscommunication or misunderstanding.

7. Link compensation to performance

Compensation is the lever that you can use to get the most optimal performance from your contractor. 

With employees, you may have limitations in defining compensation policy. Fixed and variable compensation might be set by company policy and/or local laws which will limit your options.

With contractors, you could have more freedom in deciding compensation levels. Contractors understand that each assignment is a job interview for the next assignment.

If they don’t perform, you will almost certainly not engage them for a future assignment.

This is the carrot that you can dangle in front of your contractors to get the best performance out of them. All good contractors understand this.

Apart from monetary compensation, you could consider offering compensation in kind. A perfect example is health insurance. Or if they already have health insurance, offer ancillary insurance.

You’ll, of course, need to be careful that you remain compliant with regulations especially those related to nonemployee compensation. Your HR and Legal teams should be able to advise you on these points.

Key Takeaways

  1. Understand the contractor’s or freelancer’s motivations for wanting to take up a contract job with you. Understanding motivations is the first step for a successful relationship.
  2. Make sure you are on the same page as far as expectations are concerned. Remember, the setting of clear expectations can reduce misunderstanding and heartburn later in the relationship.
  3. Define goals that are SMART. It’s critical that the contractor understands how you intend to measure success.
  4. Make the contract feel a part of the team. Include them in team activities as much as you can.
  5. Understand what value means to your contractor and then give them that value. You want a contractor who’s motivated and valuing someone’s work is the best way to motivate them.
  6. No one can improve without feedback. Give actionable feedback that the contractor is able to follow.
  7. By linking the contractor’s compensation to his or her performance you will align the contractor’s goals to those of your team and your company. Remember, that compensation is the lever that you can use most effectively.