The virtual economy has provided many amazing opportunities.
You can start a business with virtually no overhead, and have many tools to scale that growth as it happens (e.g. SaaS, cloud hosting). The new economy has also made using non-employees easier and more efficient than ever.
I’m assuming the reader has an understanding of tools such as eLance.com and Fiverr. If not, take a minute to review. I want to address some of the issues that arise from working with non-employees.
First of all, I use the term non-employee as a catch-all phrase for anyone that is not a W2 employee. Although the legal distinctions are not important for this article, suffice it to say that the law draws the line at how the individual is treated. If the business controls how they work, when they work, if they fire them, and if they cannot subcontract the work or make a profit on the work, then they’re employees.
When you hire somebody through eLance, that person may not be the one actually performing the work, which leads us to Issue No. 1. Who is actually performing the work? I cannot stress this enough. You need to know who is actually performing the work.
I recently engaged a firm to do some software development work. The firm was based in Oklahoma City, but the Chief Technology Officer was in San Diego and the development team was both in the US and Romania. Not an unusual arrangement in the development world, but if I had thought I was going to walk into the Oklahoma City office and talk to a programmer, I would have been sorely disappointed.
Knowing who is doing the work also gives you the ability to make sure they actually have the skills that you need. There are a lot of aggregators out there that are basically acting as the face for others who are doing the actual work. Again, that is not necessarily bad, but what happens if the middle man goes away, and you’re left with half complete work, and that individual doesn’t speak English? You’ve got a problem on your hands.
Lastly, subject non-employees to the same level of scrutiny that you do when hiring employees. (See my article here on hiring.) They’re doing the same work, so you need to have the same confidence. The tendency is to not put in as much due diligence, but again I would argue it is more important vetting your non-employees because they will be acting more independently.
There are generally four reasons you want to involve non-employees:
- You need the expertise. You have your core team, and they’re good at what they do, but you have a special project or need that needs additional expertise. Non-employees are ideal for these situations.
- Seasonal staffing. If your business is seasonal, you probably don’t want to keep fully staffed year round. Maintaining a core of essential personnel and supplementing with seasonal staff works nicely with non-employees.
- Temporary staffing. Unlike seasonal staffing, temporary occurs when you have a sudden change in business. Say you land a large new customer, but are not sure if it is going to be a long term arrangement. Rather than hiring a permanent employee, consider a temporary arrangement with a non-employee, or even a temp to hire. Temporary staffing also works great in fluid situations where you’re uncertain about the direction your business/market is heading, and you don’t want to make long term commitments.
- Non-essential. If it isn’t a core part of your business (e.g. payroll, accounting) it may very well be more cost effective to engage a non-employee. With small businesses, you often need lots of different expertise, but can’t afford to have one over everything; too much overhead. Non-employees or long term vendors make an ideal solution.
Don’t give someone a huge important job right out of the gate. Start with a smaller, less important job to test their skills, ability to follow instructions, and meet deadlines. I learned this the hard way, and I had been forewarned! At the end of the day, you’re dealing with people and all the problems that come along with them. Just because you didn’t put them on as an employee doesn’t mean that they don’t have family problems and money issues. Their problems will eventually become your problems, just like your employees, so don’t setup false expectations! They should require less management (notice I didn’t say NO management) and supervision, but you cannot set it and forget it.
I would argue that communication with non-employees is even more important than your internal communication. You already have relationships with your employees. You know what to expect and when. More importantly, you already have established lines of communication and expectations around them. Non-employee relationships have no such supporting infrastructure. Set communication expectations up front and use the tools available. Trello and Basecamp are two of my favorites, but there are plenty of others. Include them in whatever internal communication that is appropriate. This depends on the nature and length of their engagement, but the more you integrate with your existing team, the more successful you all will be. There is a tendency to treat non-employees as outsiders, and this is dangerous. For example, we include our non-employees in monthly team conference calls and all applicable email notifications.
First, I would obtain a very good contract. Don’t skimp on this, because if you have to enforce it, you will need something other than whatever you find on the Internet. Likely you’re dealing with multiple jurisdictions (i.e. other states or countries). As a practical matter, it may never make economic sense to enforce it, but having good fences makes good neighbors. Second, include a non-disclosure agreement (NDA). Again, don’t just pull something off of a Google search. You should be able to use the NDA for future non-employees, so you can spread the cost around.
Third, and probably most important, is control of the work product. Some people will tell you that you can’t completely protect your work product from being “re-used”, and they’re probably right in some circumstances (e.g. custom software code). That being said, it is very important that you protect your intellectual property to the extent that you can. Sites like 99Designs incorporate a copyright release into their platform, but if you’re not using a platform like that, you need to get it in writing that you own it!
Never pay someone upfront! I don’t care how much they rail and complain. It’s just bad business. The exception is if there are significant expenses involved in the project (i.e. supplies or materials). Even then, make sure you have actual physical control over those assets. Consider an old construction technique of using retainage. Hold 10 percent back after completion of the project to allow you to make sure there aren’t additional items that need to be corrected prior to making final payment. Set milestones and pay only when they are complete.
If you’re using online tools like GitHub, make sure that you own the account/repository, and add them as collaborators. This allows you to maintain control of the product, should something go sideways.
Beware scope creep! Setting clear guidelines and project expectations up front should include process to handle a change in what needs to be done. This is critical for both parties. You don’t want them to come back and say “I had to do additional work” when you didn’t want it done. A clear “change order” process prevents this. If there was no change order, there is no additional money, period.
Consider paying for the project and not by the hour. This puts both you and the non-employee on the same page. At the end of the day, you don’t care how long it takes them, just that the work is complete. If you must pay by the hour, establish a budget, and break it down by milestones. This allows you to make sure there are no surprises (or, at least, only minimal ones).
Freelancer Photo via Shutterstock
Though payroll is mentioned as a specific exception in the “non-essential” section, I would recommend payroll as one of the first places to think about outsourcing. The financial risk of getting things wrong or submitted late is far too great when considering that many payroll services charge less than $100 for each cycle.
Sometimes distinguishing between the “essential” and “non-essential” is quite a challenge. In any case including freelancers in the employee pool can save you in certain dire situations where you can fall back on them for help.