Many organizations today are relying on contractors to drive their business success. With this, it is important to do everything possible to retain that winning talent and how you pay them is an important part of that strategy. Focusing on speed and flexibility is key for how to pay independent contractors, but how do you do that efficiently? We have some tips and insights that can help!
Paying Your Contractors On Time & Automating Invoicing
With business competition for talent as fierce as ever, the last thing you want to be known for is having a slow and inefficient payment process. Contractors who are paid quickly are more likely to give you their best work.
When a HUMAN is wondering whether they would get paid on time or not, they are not working as hard or creatively as they could be…
-Yu-kai Choi, an expert in human motivation and behavioral science
Two things you should generally not rely on are manual processes and printed checks. The inefficiency and complexity in these types of payment can lead to frustration for not only your independent contractors, but for your full-time employees as well. The time it takes to create an invoice, send it to the right person, and verify receipt, coupled with the increased risk of errors can cause significant delays. Automated invoicing management, which can then trigger payments and track progress, is a must-have in today’s business environment.
Being Flexible with Your Payment Options
We all have a preferred way to be paid - whether it is by direct deposit, pay cards, PayPal/Venmo, or paper checks. Having a wide range of payment methods can go a long way towards building a positive contractor experience. All options come with some pros and cons, but in short, these are the most common ways independent contractors prefer to be paid:
1. Direct Deposit
This is the most preferred payment method amongst W2 employees - and the same could be said for independent contractors. Direct deposit can save you money and helps avoid potential problems with routing paper checks or late paper check deliveries. On the downside, it can be difficult to stop payment once triggered if you do not act on in quickly. Any changes must receive authorization from the contractor. Also, it is the organization's responsibility to maintain the security of the independent contractor’s personal information, which could add additional security burdens to your business infrastructure.
2. Pay Cards
This newer method of payment involves issuing a debit card from a provider like Wisely where payment is made directly to the worker on the card. These cards are safe and secured options, funds are FDIC insured and workers don’t need to open a bank account to receive their paychecks. Pay cards, however, can be lost or stolen, leaving the worker with no access to their funds - or worse, stolen funds (options like Wisely do also offer policies to help ensure protections against fraud or stolen cards).
3. Electronic Payment Systems
This would include services such as PayPal, HyperWallet, Square, etc. While these all have the same benefits to you as direct deposit and pay cards, there are often large fees for receiving money and transferring it out of the system.
4. Paper Check
While there are still some instances where this method would be needed, it is often considered the last resort if all other methods are unavailable. The issuing of a paper check requires a longer, manual process that can be fraught with errors. It is a very difficult process to ensure an efficient and reliable process for paying your independent contractors.
What about payment terms?
Another question you need to ask yourself is what terms you will use to pay your independent contractors. There are two key distinctions you need to keep in mind when defining the terms of your agreement.
The first and likely most common terms are likely per hour, or an hourly rate. This is where the independent contractor logs the hours they are working on the project and payment is made based on the number of hours worked. The second way is a flat rate agreement. You agree with the independent contractor to pay X dollars for a service performed or based on a per-project basis. There is a clearly defined scope of work between you and the contractor. This is then closed out as a one-time payment issued at the completion of work.
The final key set of terms to keep in mind is how independent contractors are paid in terms of days past completion for a project (when payment is due). A few examples might be net-7, net-10 or even net-15 days past once the deliverable is accepted by your organization.
Regardless of how the payment schedule is built on hourly or flat rates, or whether you pay net-10 or net 30, you need a way to track these workers and verify the completion of the project. Once the project is complete and approved - how do you know when and how much the contractor is owed? Or when it was paid and how?
This is where technology and automation really comes into play. Freelance Management Systems are a central repository for all of this information, and once a project is confirmed as complete, the platform can automatically issue payment from the assigned account based on the pre-set payment terms.
How Technology Can Help
In some ways, paying freelancers is easier than paying employees, when you have the right technology in place. A freelance management system (FMS) enables you to remove the manual processes involved with the traditional accounts payable systems and automate the functions of verifying information, processing payments and even sending the payment at ideal times for you. The contractor has the choice of accepting funds through a variety of methods (bank transfer/ACH, PayPal, debit cards, etc), putting the control in their hands. And if they need it somewhere else, no big deal as they can simply update the payment information and preferences within their dedicated user portal.
An FMS helps you to automate every part of the process of managing your independent contractor workforce - from onboarding to verification to payment. When tax season comes around, an FMS can even help you generate and submit 1099-NEC forms to the IRS and make copies available to workers in the platform, helping to remove the burden from your internal staff.
With WorkMarket, you can grow your independent contractor workforce without having to grow your back office. WorkMarket offers businesses the ability to streamline processes such as onboarding, verification, scheduling and payment as well as managing the entire project from start to finish. Learn more about how WorkMarket’s FMS is your single source of record for your independent workforce.
