Using independent contractors can be a highly effective strategy for enhancing the capabilities of a business and enabling rapid scaling. According to a recent study by MIT, 74% of companies surveyed believe that the successful management of independent contractors is essential for success.

Nevertheless, managing independent contractors can take a significant amount of time, and numerous business owners discover they lack the necessary oversight and control to understand the contributions of this expanding workforce. In the same MIT survey, only 30% of participants felt equipped to handle independent contractors effectively.

Traditionally, organizations have sourced, overseen, and compensated their independent contractors through various disjointed methods, including spreadsheets, phone conversations, and emails. This approach can be scattered and can hamper efficiency and the ability to scale. Contractor management software addresses these issues by offering a way to automate and streamline all facets of independent contractor management.

What is contractor management software?

A Contractors Management System (CMS) is a cloud-based centralized platform designed to transform and manage freelance workers' hiring process, task allocation, and compensation.

Organizations using such software can anticipate benefits like:

  • Enhanced ability to discover skilled freelancers
  • Seamless onboarding processes for freelancers
  • Access to a broader spectrum of qualified professionals based on expertise, credentials, and specific qualifications
  • Efficient organization of talent pools for quicker deployment
  • Ease in managing both remote and on-site project assignments
  • Quick and versatile options for electronic payments, including international transactions
  • Boost in productivity and overall performance levels
  • Greater oversight and predictive analysis of freelance workforce expenditures
  • Improved channels of communication and engagement with mobile workers

Additionally, contractor management platforms offer features that ensure regulatory compliance and create a traceable document flow for accurate tax documentation.

Features of contractor management systems

A Contractor Management System (CMS) offers a comprehensive platform and unified data source, enabling organizations to streamline the management of their freelance workforce. It is designed to be flexible, allowing companies to blend the CMS with their pre-existing infrastructures and select only the functionalities that meet their needs.

Key functionalities of a contractor management system typically include:

  • Methods for identifying talent and extending invitations
  • Verification mechanisms to confirm the skills, certifications, and qualifications of freelancers
  • Flexible categorization of talent by skills, geographic location, and other criteria
  • Communication enhancements that ease interactions, like mobile apps
  • Management of tasks, including the allocation, monitoring, and verification of completed work
  • Diverse payment solutions that enable companies to define payment terms and freelancers to select their preferred payment methods

What are the benefits of contractor management software?

Contractor management systems can significantly decrease or even eliminate cumbersome and manual tasks, enabling organizations to use their time more efficiently. With a contractor management system, companies can:

  • Easily identify and onboard contractors
    Customizable landing pages simplify the onboarding process of new contractors by minimizing administrative errors.
  • Organize and assess talent performance
    Automated algorithms allow for immediate sending of invites to qualified contractors through pre-defined talent pools.
  • Streamline assignment management
    With built-in coverage maps, companies can quickly identify areas lacking labour and promptly create assignments using templates that consolidate standard project information, ensuring a qualified contractor is dispatched efficiently.
  • Offer essential analytics and insights
    Executive dashboards and reports give organizations valuable data regarding their independent contractor workforce, aiding in budget and expenditure management.
  • Improve payment processes
    The system's electronic payment options provide a secure, reliable, and flexible payment method for contractors globally.
  • Enhance the overall contractor experience
  • By alleviating administrative tasks and offering quicker and more adaptable payment methods, along with an efficient onboarding process, the system simplifies contractors' professional routines, making them more inclined to accept future assignments.

Challenges of managing independent contractors

Businesses around the globe engage with independent contractors to broaden their market presence in areas they previously hadn't explored. However, these regions often fall outside the company's officially registered operating zones, and compliance rules can differ significantly across provinces and countries, affecting everything from specific filing and reporting needs to withholding requirements and beyond.

Another issue in dealing with independent contractors is the irregularity of their payment schedules, unlike traditional employees who receive steady paycheques and have employment taxes automatically withheld. Regarding tax time, the business paying the contractor and the contractor themselves must accurately report the contractor's income.

Contractor management systems provide a vital solution in navigating tax and income complexities. They create a traceable record, storing all essential details such as worker profiles, assignments, payments, and geographical data within a unified system. Companies can swiftly access and retrieve information with minimal effort.

Who should use a CMS?

When an organization collaborates with numerous independent contractors, overseeing their tasks and coordinating with them can become increasingly challenging. It might be beneficial to consider implementing contract management software if the company:

  1. Spends considerable effort and resources on the administration of a vast network of independent contractors.
  2. Aims to merge service ticket platforms with enterprise resource planning systems for a more efficient contractor assignment and remuneration process.
  3. Seeks to enable line managers to deliver faster services to clients through enhanced flexibility.
  4. Requires assistance in adhering to the various corporate, legal, or industry standards and regulations.
  5. Is in need of versatile payment options and integration capabilities with existing financial infrastructure.
  6. Manages contractors across broad geographical areas and is interested in expanding into new, less saturated markets.

Since the management needs for independent contractors can differ significantly between departments, the application of Contract Management Systems (CMS) varies. Typical applications include:

  • For IT, marketing, and sales teams: Facilitating the onboarding process, evaluating freelancers, tracking project progress, and assessing worker availability.
  • For HR departments: Standardizing the onboarding process, ensuring compliance across the organization, and setting uniform contract terms for contractors.
  • For finance teams: Organizing and storing invoice data, making secure contractor payments, documenting transactions for tax purposes, and offering insights into freelance-related expenditures.
  • For legal departments: Guaranteeing compliance with all relevant laws and regulations and managing contractor engagements accordingly.

Frequently asked questions

What does contractor management software do?

Contractor management software helps create a seamless process for onboarding, organizing, overseeing, and paying independent contractors.

How much does contractor management software cost?

The cost of CMS varies based on multiple aspects. Organizations should be prepared to provide answers to the following inquiries when discussing pricing with vendors:

  • What is the number of contractors you oversee?
  • Is there a need for payment on a per-project basis?
  • What level of continuous support will be necessary?

What is the difference between an independent contractor and an employee?

The distinction between employees and independent contractors revolves around the rights and benefits allocated to the service provider. Typically, employees are subject to specific directives regarding their work schedules, locations, and methods. In contrast, independent contractors usually have the autonomy to make these decisions. Using a worker classification checklist can assist organizations in determining the appropriate classification for their workers.

How do I manage payroll for contractors?

Handling contractor payroll involves collecting invoices, confirming project completion, and executing payments following established payment conditions.

How do I pay international contractors?

The process for paying international contractors parallels that of local independent contractors, requiring the submission of invoices, confirmation of work fulfillment, and concurrence on payment terms. Nonetheless, this process often incorporates the element of currency conversion. Thus, having a system in place to facilitate cross-border payments and manage the fees associated with international currency exchange is essential.

For more information on employer deductions, please refer to the Government of Canada page.

How does contractor management work?

Contractor management ensures clarity regarding work scope, roles, timelines, payment agreements, and expected outcomes among all involved parties. This procedure includes:

  • Identifying and hiring the most suitable candidate for the task
  • Completing the contractor's onboarding
  • Meeting all internal prerequisites of the company
  • Acquiring confirmation of project completion
  • Finalizing payment according to the initially agreed terms

Learn More

Are you looking to manage your contractors? You can benefit from ADP's solutions by getting help with onboarding, payment, and much more.

Talk to us about your contractor management goals, and we'll walk you through our solutions — including how companies like yours use them. Call 866-622-8153 or start a quote.

This guide is intended to be used as a starting point in analyzing contractor management software and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

ADP Editorial Team

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.