Businesses nowadays must be more adaptable than ever before. Organisations all over the world are focused on establishing agile workforces made up of both employee and non-employee labour as a result of growing market competition and constant market dynamism.
Independent Contractor Payroll: According to a Vakilsearch survey, firms are increasingly using contingent labour for both strategic and operational objectives, such as boosting internal talent skills and increasing workforce flexibility and receptiveness. According to the same report, several large organisations estimate that contingent workers account for up to 30% of their total procurement spend.
Consultants, independent contractors, and other outsourced personnel are examples of contingent workers, who are temporary employees engaged on a project or contractual basis. Companies may choose to recruit on a contingency basis to save money or to find particular skill sets.
Payment Nuances of Normal Employees Vis a Vis Independent Contractors
Because labour is the most expensive component of a firm, it’s only logical that companies are turning to the contingent workforce to shift their payroll bills from a fixed to a variable cost.
While every employee is employed on an Employment contract and may claim the benefits that come with it, an independent contractor is engaged on a scheme of an hourly rate for a particular project, or similar such arrangement on date, time or quantum and their contract ends when the project is finished.
As a result, independent contractors are classified as either non-employees or temporary workers, and they are not entitled to employee benefits such as compensation, overtime, vacation time, sick pay, or health insurance, and the company that hires them is not responsible for paying their taxes, unemployment insurance, or social security.
These workers are compensated in a very different way than employees. Independent contractors are frequently paid through a third-party, such as an employment agency or a managed services provider, rather than through payroll (MSP).
What Are the Challenges in Managing Payroll of Independent Contractors?
i) Invoice Collection and Processing:
Contractors track and manage their own time and production because they work for themselves. Then they send you an invoice for payment based on your agreement, whether it’s an hourly or per-project basis often in global currencies, is a headache. All of this can lead to delays, which can negatively impact your relationship with your contractor. So you’ll need a mechanism to handle invoices and pay contractors before you can do anything else.
ii) Maintaining Compliance With Local Labour Rules:
Each country has its own set of labour laws demanding a safe working environment. Contractors must register with the government before accepting contracts as independent employees in other sectors. When it comes to managing global workers, there are multiple sets of rules to observe, and those standards might change at any time. It is critical to keep track of the legislation and maintain the necessary legal infrastructure.
iii) Managing Tax Requirements and Related Tax Forms:
Every country has its own tax requirements and tax forms, just as it does with local labour laws. These specifications are subject to vary from year to year. Make sure you’re gathering and filing all of the necessary paperwork on behalf of each contractor.
iv) Contractor Misclassification:
Contractor misclassification is caused by: not conducting proper research on categorisation criteria for each country where you recruit -paying contractors appropriately for contract work -reviewing the nature of your connection with each of your contractors on a regular basis
How to Manage Payroll for Independent Contractors
Because the method you should pay independent contractors differs significantly from how you should pay salaries to the employees, it’s critical to keep track of how you pay your contingent workforce.
Make sure you follow these steps to ensure you’re correctly paying your independent contractors and avoiding any risk or overspending issues with your contingent workforce:
i) Get a Thorough Picture of Your Contingent Workforce:
It’s critical to have total visibility and control over contingent labour headcount in order to get a clear picture of payroll costs. With a contingent workforce, this can get rather complicated because independent contractors are hired by multiple hiring managers, across several departments, and through staffing agencies.
You’ll need to establish an efficacious contingent workforce management strategy and incorporate a Vendor Management System (VMS) into your management procedures to achieve comprehensive visibility and control. This cutting-edge solution will consolidate your freelancers and provide you with comprehensive insights into their payroll expenditure.
ii) Create a Unified Hiring Approach That Spans all Departments:
Most contingent workforce management programmes, as we discussed in the previous section, deal with inconsistencies and non-centralised management processes that allow hiring managers to hire independent contractors on their own terms, paying the rate they believe the worker is worth.
As a result, wage rates are inconsistent. Independent contractors in other areas will be compensated at drastically varying prices, resulting in your company paying more for talent. A VMS will help to centralise the process, ensuring that all recruiting managers are on the same page and that independent contractors are paid fairly.
How Vakilsearch Can Help?
It’s difficult to improve your complete contingent labour management approach in order to obtain a better understanding of independent contractor payroll concerns. It can be nearly impossible to execute in-house without the necessary resources, skills, and technologies. That is exactly where Vakilsearch chips in its customised services in Payroll management includes the following:
- Onboarding
- Contract administration
- Management of compliance
- Payment’s offboarding supervision
Want to learn more about how Vakilsearch can help you manage your independent contractor payroll more effectively, saving you money and allowing you to make better recruiting decisions? Get in touch with our contingent workforce experts right away. We’d be delighted to address any inquiries you may have.
Read more,
