Updated April 2021
In any business, hiring and managing employees can be a difficult and challenging process. It can also become a legal and bookkeeping nightmare and cost a lot in terms of bureaucracy and record-keeping.
As an alternative, hiring independent contractors in the rental industry is common practice. Landlords bring these individuals on as property managers to help them get the day-to-day work done—but is this going to be the best choice for your business?
Let’s address the nuts and bolts of hiring property management contractors versus employees, to get a deeper understanding of what the differences are and why they matter to you.
A Table Of Contents On Hiring Independent Contractors
There’s a lot to dissect when talking about employees versus independent contractors in the rental industry. Rather than get overwhelmed, start here and work through this list to learn more about this hot topic today.
- The Advantages Of Hiring Independent Contractors
- The Downside To Hiring Independent Contractors
- Employee vs. Contractor
- FAQs For Property Management Contractors
When thinking about hiring an independent contractor for your business, you are probably going to have a lot of questions. Is this process worth it? Are there benefits to bringing another person onto the team? Should I hire them as an employee instead of a contractor?
There are a lot of advantages to hiring independent contractors rather than bringing on a full-time or part-time employee. Contract workers are handled differently in many respects. Learn more about how these differences may be good for you and your business.
When hiring independent contractors, guidelines are far less stringent. You are not extending an offer of employment and therefore do not have to establish the right to work; it is assumed.
You will also not have to keep extensive records like Social Security numbers, drivers license information, or passport copies.
Instead, you will simply need to make sure that you keep any contractual records of your relationship. This will be important in the vent that either party has a problem with the contracted relationship down the line, but simple contracts are easy to keep track of in this way.
When hiring independent contractors, you will not have to put them on your payroll or withhold taxes. In fact, independent contractors are responsible for paying their own taxes, and the only requirement you have as the business owner is reporting what you pay them over the course of any given year. Payroll taxes can be quite complex, so be sure to check IRS rules for specifics.
In the past, you had to use Form 1099-NEC to report payments to nonemployees. Today, you would use the Form-1099 MISC.
With independent contractors, you will not have to administer their 401k or other types of retirement programs, whereas with employees you most certainly will. There is a high cost associated with the administration and record-keeping of such retirement plans.
This means that by bringing on independent contractors rather than part-time or full-time employees, you are not setting yourself up to need to develop an extensive 401k or payroll system. If you are a small business of just yourself—a sole proprietor—this saves you both time and money. You also do not need to worry about workers compensation.
There may come a point when hiring employees and setting up these systems would be a good decision, but most landlords who primarily work alone or with contractors do not need to invest in these types of systems.
Additionally, you do not have to provide disability insurance or unemployment benefits for independent contractors. Of course, these are added costs with additional overhead for program administration for employees.
Whereas small business owners may want or need to provide insurance coverage options for their employees, landlords hiring independent contractors for specific work do not need to do this. Most contractors will already have their own health insurance and will not expect you to provide any options for coverage.
Certified independent contractors working in construction, plumbing, and other trades are required to carry their own insurance protections. There are many fines and penalties for not doing this.
Additionally, independent contractors who are highly qualified property managers will typically carry some type of liability and commercial insurance. Should any issues or lawsuits arise, these protections will be important since the contractor may be directly involved or responsible.
As a business owner, you will want to carry your own liability insurance for the work that you do, but you can expect that qualified property managers will have their own coverage as well.
When hiring employees as your property managers or other workers, you may feel a great sense of loyalty to and responsibility for them. While it is good to trust in your independent contractors too, working on a contract basis allows you more flexibility as you grow your business.
If you find that you are not happy with the work a property manager or other worker is doing, you can easily switch to a new one if using independent contractors. Additionally, you can give more work to those you feel are doing a great job.
Staying in control of your business this way is essential to ensure long-term growth. Keep the power in your hands.
There are some pitfalls to hiring independent contractors that you should also be aware of. Choosing between employees and independent contractors will depend on your specific situation, so take some time to consider these risks as well.
Firstly, while you do not have to provide insurance for various risks, it may be in your best interest to do so. For example, if an independent contractor works on your behalf in a customer’s office and injures themself or someone else, you and your business may be sued and held liable. At the very least, the cost of defending yourself in court could be prohibitive.
If you have thorough business insurance, you may find that your risks of said issues are passed on to the insurance company, which is more likely to settle a claim for you before it ever gets to court.
Another potential pitfall with hiring independent contractors is that you cannot dictate the working parameters in as much detail as you can with an employee.
With independent contractors, things such as work times, work days, and work apparel are not under your purview. This makes it very important to ensure that you have the right contract in place. You want to be certain that all work you expect to be handled is taken care of properly, but you cannot dictate exactly how it is done.
If, at any time, you are not satisfied with how an independent contractor represents your company, you can simply fire (or not rehire) them and call it a day. That reduces the risk of being stuck with someone you don’t enjoy working with, which can bring some peace of mind to landlords.
You cannot do this as easily with an employee, even in “at will” states such as California. Sometimes it takes weeks and even months to terminate an employee, who may choose to sue you for wrongful termination and tie you (and your funds) up in court for months or even years.
In the case of property management, your choice for hiring employees versus independent contractors is fairly simple: Run the numbers and see what works best for your situation. The best way to do this is to consider specific types of services for which you want to bring on help, and then see if having an employee or a contractor makes the most sense.
For landscaping services, it may be much more feasible for you to hire an outside company than to hire internally; there simply isn’t enough work on a weekly basis to hire a full-time employee, and hiring a part-time staffer may not make sense given the level of effort required to place them on the payroll.
On the other hand, it may be a no-brainer to set up something with an independent contractor for them to come by once every week or two and perform the tasks necessary to keep your property looking beautiful.
Depending on the number of properties that you manage, you may have a large number of day-to-day repairs to deal with. If you operate more than 10 units, it may be of benefit to you to have a full-time employee dedicated to handling repairs.
On the flip side, landlords with just a few properties will often find that the cost of keeping a full-time employee for these repairs is much too high. Entering into limited contracts as needed to get repairs done will likely be a better choice financially, even if it requires a bit more legwork.
Additionally, consider that investing in one type of contractor may reduce your need for another. If you bring on a property management team as an independent contractor, they will often provide their own links to contractors for repairs and other services. Keep this in mind when choosing a property management team.
If you are a landlord, you might be wondering whether you should manage the hiring of all these different types of independent contractors yourself, or if you should bring on someone to do this management on your behalf.
Property managers can be a great option to manage more of your properties with ease, and they are often brought on as independent contractors. By hiring an experienced property management company, you can work with them to set up the exact terms without needing to hire them as employees.
The best property management teams will be used to working as contractors, and they will have their own employees and teams of specialists who are ready to work on things like landscaping, repairs, and renovations. Depending on your specific contract, you will be able to have an entire team at your disposal without the stress of hiring employees.
Working as a landlord takes a lot of effort, even when you have the help of various independent contractors. To simplify your work from day-to-day, use RentPrep’s landlord mega bundle of forms. These forms can make your work simpler as you use them as guides to create secure contracts.
In most cases, a property management company will pay 10-15% less to a contractor compared to what the contractor would have received from a one-off job. This is understandable because the value in working with a property manager is that they can provide a higher volume of projects.
Once a relationship has been established, a contractor can have one client (the property manager) and have hundreds of rentals that could potentially need work in the near future. The property manager in many instances is passing along a markup to their client for their time on whatever the contractor charges them.
By bringing a property manager onto your team through independent contracting, you can establish a connection to these relationships. Experienced property managers know lots of experienced contractors, and they can ensure the work gets done properly from start to finish.
Many independent contractors who are looking to create connections with local property management companies will create a list of possible companies to reach out to. Time is money, though, so it is often recommended to hire someone to do some data mining.
If you are an independent contractor looking to meet property managers, you can reach out through a service such as fiverr.com and enter “data mining” into the search bar. Then, hire the person to find property management companies in your area including their contact information.
Next, understand that a pain point for a property manager is that they don’t want to chase down contractors to complete work. They want someone who is insured, reliable, and does a good job. That’s it. When you reach out to property managers, make sure you get those three points across.
This really depends on the property management company; each has their own system in place to manage their teams.
Some will go to Craigslist, Home Advisor, or Porch.com, and others will go to local real estate meetups to get referrals. A great place to find work as a contractor is to develop relationships with people at tool rental locations. The desk associates speak with hundreds of landlords and even property managers who have smaller businesses or perhaps are doing DIY projects on their own homes.
A great tactic would be to get involved with the associations where property managers hang out. NARPM.com is a great place to start, and they have a directory of members too.
If you as a landlord have specific independent contractors who you have enjoyed working with in the past, you can recommend these contractors to your property managers and express your preference for their work. Not only will this bring more work to your favorite contractors, it will also set you up with a team you are comfortable with.
Hiring A Contractor For Your Business
As you can see, the advantages of hiring a contractor for your business are numerous, but it all comes down to your personal decision.
All landlords will need to hire independent contractors for building, renovation, plumbing, and repair work from time to time. Some might even hire property managers who may then take over the process of handling the other independent contractors.
Think about how you would like to structure the team that you bring on to work on your properties. Do you want to have a single person handling all work, or are you prepared to set up a variety of independent relationships? Consider your options, and then move forward with establishing the contracts as needed.
You do have options—don’t be afraid to explore them!