Contractors can have many benefits for businesses, as described in the first part of this blog, such as reduced labour costs and the ability to add and remove skills as you need them. Although there are many benefits to engaging contractors, there are certain things you need to know before diving too deeply into the pool of contract talent as an employer. In the second of our two-part Employer’s Guide to Contractors, we go over the various risks and challenges that engaging contractors can present.

Risks

Intellectual Property

Although there are many benefits to engaging contractors, doing so does not come without its risks. One risk is that a contractor will take business information with them when they move on to their next employer, which might be a competitor. Though this risk also exists with permanent employees, with contractors being a more transient workforce, this information is more likely to circulate.

Our terms of business strictly prohibit this, and with clients where contractors will be working on a particularly confidential piece of work, we will often require them to sign a specific NDA around the assignment.

However, no amount of paperwork can cover information that isn’t strictly prohibited, such as certain processes or best practices. Keep in mind that contractors are often engaged to do exactly this, as the specific, specialist expertise they are being hired for, have usually been in use at competing companies.

Negatively Affecting Culture

Although many businesses are putting more stock into how contractors fit the company culture, there are also a significant number of companies who still don’t see it as a priority. This may cause disharmony in the team, as contractors do not get the same benefits or perks as permanent employees, and not being involved in the company culture (not receiving bonuses or being invited to company events) may make them more disillusioned with the company. Although nobody expects contractors to function and behave exactly like permanent employees (and in many scenarios, this is why they are hired in the first place), alienating them entirely can make them less productive, and less helpful when they leave as they will be less inclined to help train other staff.

With the Internet and social media making it so easy to find information, personal branding has become crucial for contractors. Because of this, contractors are now more motivated than ever to leave a good impression, as they rely on each job to secure their next one.

Performance Management

The most significant problem companies have with contractors is ineffective management systems. Although they have the skills to complete the tasks, they may be using their time (and thus, your time and money) inefficiently on tasks that permanent employees could have completed. With contractors being paid a certain amount regardless, pay for performance is less of a concern, so there is rarely much in the way of performance appraisal or evaluation.

Many companies fail to make a co-ordinated effort to engage contractors and integrate them into the same systems as the rest of their workforce, and although sometimes contractors must operate outside of this, this can also lead to a lack of visibility in how contractors are being used in your company.

With contractors often being a scattered function, there is rarely a single centralised unit that tracks their cost, which can make things very difficult for HR. Although contractors are generally managed by a project manager, there are now so many contractors within companies (some of whom are project managers), that greater oversight is necessary. Previously, if a contractor was not performing to an acceptable standard, the contract would just be terminated. This is now more challenging due to the volume of contractors within organisations, which allows non-performance to fly under the radar somewhat. Without proper centralisation of management, it becomes difficult to truly assess the efficiency of your contractors. This makes them more difficult to evaluate, and makes data driven planning for your contract workforce problematic.

Summary

Contractors are becoming a vital part of a company’s workforce, especially in today’s IT industry. As flexible working continues to become more of a common phenomenon, we will likely see more employees moving into contracting, making it crucial for employers to understand exactly what they are getting into. If you are looking to engage a contractor, or are wondering if you should in the first place, feel free to get in touch with us here at RWA and we will do what we can to help.