Contractor Payrolling & Its Benefits

With the booming gig economy, the engagement of contractors or independent workers are becoming increasingly popular. Statistics have shown that the gig economy grew by 30% in 2020, expanding 8.5 times faster than the US economy. With the flexibility that gig work offers, it is no wonder that 81% of independent workers prefer to continue working in the gig economy.

However, one challenge that businesses face is managing payroll for these contractors.

WHAT IS CONTRACTOR PAYROLL?When organisations consider how to compensate independent contractors, most organisations tend to turn to fuss-free solutions such as PayPal or Xero. While these are relatively easy to use, they are prone to errors and time-consuming, particularly when organisations engage a significant number of independent contractors.

As such, an increasing number of organisations are turning to purpose-built contractor payroll solutions such as Paychex, Gusto and Rippling, that enable them to pay contractors from the same familiar payroll platform used to pay their full-time employees.

Managing contractor payroll is essentially similar to managing employee payroll, albeit there are some differences. Organisations will need to figure out how much to pay each contractor, how frequent to pay them, and the method used to facilitate the payments. In most instances, contractor payroll is even more straightforward than employee payroll given that there is no need to take into account taxes, mandatory pension contributions or any other statutory contributions from their paychecks.

BENEFITS OF DEDICATED CONTRACTOR PAYROLL
SECURE AND TIMELY PAYMENTS
When organisations hire contractors, there is often the risk of delayed payments once the project or task is completed. This can be disappointing for contractors who may live from paycheck to paycheck. Contractor payroll solutions help to streamline and automate payment to these contractors, particularly through accurate payroll computation and also providing the option of flexible or on-demand pay. For example, payroll teams can set an expected project completion date in the contractor payroll software. Once the project is completed, salaries are automatically disbursed to the contractor after a certain number, say 2 days. This flexible payment feature ensures that every independent contractor will be paid on time based on a predetermined date set by the payroll team, and also minimises the risk of data entry error since everything is computed automatically.

COMPLIANCE WITH LOCAL SALARY AND EMPLOYMENT REGULATIONSSimilar to full-time employees, independent contractors are often also covered under a set of employment laws and salary regulations. This means that organisations still need to be cognizant of these legislations when computing payroll, or they may risk hefty fines due to non-compliance. Unlike band-aid payment solutions such as PayPal or Xero, contractor payroll software offers similar features as a traditional payroll software. This includes checks to ensure that contractor payroll is in compliance with local salary regulations. Concurrently, most software also includes auto-updates whenever there are changes in salary regulations or employment laws, ensuring that organisations maintain compliance with the latest legislations.

ACCESS TO AND ENGAGEMENT WITH POOL OF CONTINGENT TALENTWith the growing reliance on contractors, this group of gig workers become an important talent pool for organisations. It is important for organisations to constantly engage contractors to gain access to this important pool of talent. Timely and accurate salary payments is one way to build rapport, trust and engagement with contractors. And this can be supported with a reliable contractor payroll software.

HOW TO RUN CONTRACTOR PAYROLL?
SET CONTRACTOR RATES
Firstly, organisations need to decide how much to pay their contractors. This rate may differ depending on the industry that the organisation is in as well as the type of work to be done. It is best for organisations to do an external benchmarking to determine how similar organisations compensate their independent workers. Alternatively, organisations can also consider working with skilled contractors who set their own rates – which could be hourly, per-project fees or even monthly retainer-fees.

DECIDE ON FREQUENCY OF PAY RUNSOnce the contractor rates have been set, it is time to figure out the frequency of payments to the contractors. This may be done biweekly, weekly or in certain instances, even daily. Some contractors also prefer on-demand pay, where they are compensated once a particular project or task is completed. It is best to determine the type of work that organisations typically engage contractors for and decide on an appropriate pay run frequency based on the nature of work. Organisations can also offer on-demand pay as a secondary option for the contractors.

SIGN AN AGREEMENT WITH THE CONTRACTORGiven that contractors are not employees of the organisation, it is always best to sign a contract or work agreement to protect the interests of both the organisation and the contractor. Typically, a work agreement details the hourly or job rates, the mode and date of payment, the job scope as well as the goals and deliverables. Always sit down with the contractor to clarify any questions or make any changes to the work agreement as necessary.

Contract payroll through a payroll software can help organisations to save time and simplify the entire payroll process. Organisations can also pay both employees and contractors in the same payroll instead of running two separate payrolls when using a contractor payroll software. Regardless of the option, organisations should always weigh the benefits and drawbacks of utilising a contract payroll software before deciding on an option that best fits the organisation’s needs.