What is a Contractor Management System: How Does it Work?

Updated 12th of March 2025

What is Contractor Management?

A contractor management system ensures compliance with independent contractors for businesses, while simplifying and automating tasks such as classification, verification, onboarding, and international payments.

If you are an employer in 2025, chances are that you are either already working with freelancers and contractors – or are thinking of doing so soon. But have you perfected your contractor management strategy?

Simply working with contractors is not the same thing as managing them and actually getting it right. If you have ever heard managers complaining about how difficult it is to find good external talent, how often they face communication gaps with remote teams and how stressful end-of-the-month payment cycles are, you know they are doing the former – but not focussing on the latter.

So what is contractor management system and how can contractor management system help you sidestep these issues in future when insuring contractor compliance?

Contents

1. How does it work? 

2. Contractor Management Process

3. Key features of contractor management system

4. Checklist for choosing a system

5. Why is contractor management important to your business?

6. Best contractor management systems in 2025

7. The modern employers guide to managing contractors

While it is true that you do not need to train and direct independent contractors and freelancers the way you would your permanent employees, managing contractors is a whole different ball game. Good contractor management helps with every aspect of the engagement. 

So, what is contractor management? Firstly, it ensures that everyone involved is clear about their obligations. For your contractors, this would include the scope of work, their specific responsibilities, their deliverables, timelines and so on. As the employer, your obligations would include making sure the contractor has everything they need to do their job independently, and to pay them the agreed amount on time.

Secondly, good contractor management leaves no room for guesswork. If expectations are not clear until the very end, you might need to get the work redone, causing you to go beyond budget and miss deadlines. Proper contractor management tools and capabilities will let you spot issues early on, and address them in real time.

Finally, contractor management lets you maintain good relationships even after the engagement is complete. So the next time you need a contractor, you know exactly who to reach out to and count on.

How does it work?

For many employers, contractor management is still done the old-fashioned way – manually through spreadsheets. But imagine onboarding a group of contractors and having to manually keep track of what documents they have submitted and individually following up about the ones they haven’t. Or having hundreds of invoices flooding your inbox at the end of every month.

Managing contractors this way gets too effort-intensive and expensive. Human errors are unavoidable too – managers might very easily miss out on updating a spreadsheet, or lose track of a contract or invoice. Cue, the follow-ups and task management confusion!

The more sensible option is to go for the modern solution of just using a great contractor management platform. The best contractor management system automates all the key features and processes, so operations continue to run smoothly while saving you time and money. Such systems keep all the information secure too.

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Contractor Management Process

A contractor management process is a structured approach businesses use to oversee independent contractors, ensuring compliance, efficiency, and streamlined operations from onboarding to payment.

Effective contractor management goes beyond hiring - it involves clear communication, legal compliance, performance tracking, and timely payments. A well-defined contractor management process eliminates ambiguities and ensures both businesses and contractors fulfil their obligations smoothly.

Step-by-Step Contractor Management Process

1. Define the Scope and Deliverables

   • Outline project expectations, deadlines, and key performance indicators (KPIs).
   • Establish contracts and legal documentation to ensure compliance.

2. Onboard the Contractor

   • Collect necessary documents such as NDAs, tax forms, and contracts.
   • Provide access to tools, resources, and project details.

3. Track Performance and Compliance

   • Monitor deliverables and deadlines for quality and consistency.
   • Use a contractor management system to maintain visibility and compliance.

4. Manage Payments and Invoices

   • Automate invoicing and payment processing for efficiency.
   • Ensure international payments comply with tax regulations.

5. Review and Finalize the Engagement

   • Conduct a performance review and document key takeaways.
   • Maintain a database of reliable contractors for future projects.

A well-structured contractor management process enhances productivity and strengthens relationships with external professionals. Using modern contractor management systems helps businesses streamline operations, reduce admin work, and ensure compliance.

Key Features of Contractor Management System

Let us explore the features of a contractor management system in detail to see exactly what it does.

• Supports finding good talent

A good contractor management system helps you discover good talent from around the world. Some contractor management platforms do this through recommendations. Others like TalentDesk, are integrated with the very best freelancer and contractor marketplaces, where you can filter and browse talent.

• Hiring and onboarding process is made easier

The best contractor management system lets you create an onboarding process that works for your organization – and then ensure that every new contractor hired adheres to that process. It enables you to store contracts, NDAs and worker details, and ensures that everybody has submitted the documents they need to. Discover more by reading our full checklist for onboarding contractors.

• Functions as Agent Of Record (AOR) 

When you are hiring contractors from around the globe, it is important to remain compliant to various laws and employment policies. For example, there are different rules for classifying workers in different countries – and these classifications dictate the amount of tax to be paid. Getting this wrong could lead to fines. A good contractor management system might offer Agent Of Record (AOR) services to help you manage contractor compliance.

What are EOR and AOR services? Learn about the key differences and responsibilities.

• Offers project management capabilities

Once you have hired and onboarded your contractors compliantly, it’s time to get them started. A contractor management system gives you an overview of all your projects, keeps track of who is handling what, and lets you manage deadlines. Some solutions also enable you to share information securely. 

• Logistical features such as time tracking & invoicing

Working with contractors involves a lot of operational steps like time tracking, raising worksheets, and more. Without a comprehensive system in place, you end up investing in separate tools for each requirement – thus driving up operational costs. A contractor management system brings all these offerings under one single platform.

• Payment capabilities

  Finally, given that you might be working with global contractors, it’s important to have a portal that allows you to make payments in different currencies. A contractor management system usually integrates with payment portals that enable you to handle currency exchange and make international payments seamlessly. 

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Checklist for choosing a system

Different contractor management system systems will offer different combinations of these features. What you choose ultimately depends on your requirements as an organization. That said, there are certain contractor employee management system capabilities that you should not compromise on:

• Easy to deploy

  Contractor management system systems that are clunky, take days to get up and running, and interrupt your internal processes to the extent where your teams are unable to function, do not make for great solutions. Ideally, the system you choose will be installed and up-to-speed in a matter of hours (if not less!).

• Intuitive and easy to use

  Contractor management systems that require a lot of training to get the hang of are not suitable for most businesses. Since you might be hiring new contractors every week, you will likely end up spending way too much time just training them to navigate the system. The ideal system should be easy to use with little to no training.

• Integrates with your existing systems

  You might already be using certain project management software, time tracking, processing payments and so on. Having to transfer all that data to your new system might prove too tedious. That’s why, it is recommended to go for a cloud based contractor management system that integrates seamlessly with any software that you already use.

• Cost-effective

  One of the top advantages of working with contractors is that it gives you the flexibility to scale up and down as required. That’s why, whatever system you choose should be cost efficient – whether you’re working with ten contract workers or hundreds.

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Why is Contractor Management important to your business? 

If you get all the factors discussed above right, a contractor management system can help you reap incredible benefits for your business. 

Most companies are experiencing massive talent shortages right now, with skill gaps in domains like IT, cloud computing and more. The ability to work well with contractors then becomes a boon because it gives you access to the most skilled professionals from around the world. In stark contrast, companies with more traditional workforce structures are forced to choose from a small pool of local talent. As seen above, contractor management tools help you manage compliance too, so you don’t need to worry about facing any legal or financial repercussions as you work with your global workforce. 

Being able to work effectively with a contract workforce also gives you incredible flexibility. You can take up short- and long-term projects without having to think about hiring permanent employees – or incurring the cost of letting them go once your requirements change.

On a more strategic note, a successful contractor management process frees up time for your managers so they can focus on growing your business rather than having to spend time on operational tasks like documentation, processing invoices, dealing with follow-ups and more. 

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Best contractor management systems in 2025

As businesses continue to embrace a flexible workforce, contractor management systems play a crucial role in streamlining operations, ensuring compliance, and managing global talent efficiently.

When choosing a contractor management system, look for features like project management, payment processing, compliance support, and talent sourcing. There are several software options available to help you manage contractors effectively and maintain compliance including, Deel, Papaya, Remote and TalentDesk.

For a detailed look at the top contractor management systems in 2025 and to find the best fit for your business needs, visit our comprehensive listicle below.

➡️ Check out our Best Contractor Management Software guide.

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The modern employers guide to managing employer

Working with contract workers is a necessity in today’s workplace context – and organizations that do not do this are essentially giving up their competitive edge. However, businesses that actually make the effort to hire contractors without focussing on proper contractor management are probably worse off.

TalentDesk offers an easy way around this. It offers all the key features and capabilities that you will need – and it checks all the boxes in terms of usability, scalability and ease of navigation. So whether you are just starting to explore the advantages of working with off-payroll workers or are familiar with the process and are looking to scale up, TalentDesk can help you meet your needs.