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HCMWorks Insights

How to Manage Your Independent Contractor Payroll

Posted by Julia Fournier on 16 Nov 2020

Today’s businesses need to be more flexible than ever. With increased competition and rapidly changing market conditions, organizations across the world are focusing on creating agile workforces made up of both employee and non-employee workers. 

As a result, there has been a huge upswing in the use of contingent labour in the last few years. According to a study from Deloitte, companies are increasingly using the contingent workforce for strategic reasons, such as supplementing internal talent capabilities as well as for operational reasons such as increasing the flexibility and responsiveness of their workforce. 

That same study found that some large companies estimate that up to 30 percent of their entire procurement spend goes toward contingent workers. 

With labour being the largest expense in business, it’s only natural that organizations are using the contingent workforce to transform their payroll expenses from a fixed cost to a variable cost. 

Yet paying independent contractors is far different than paying your employees. 

What’s the difference between an independent contractor and an employee? 

While any employee is hired on an employee contract and entitled to the benefits that it brings, an independent contractor is hired and paid an hourly rate for a specific project and their contract is finished once that project is completed.

As a result, independent contractors are considered either non-employee or temporary workers and are not entitled to the benefits of an employee such as a salary, overtime, vacation time, sick pay, health coverage, and the company hiring them does not need to pay their taxes, unemployment insurance or social security.

How these workers are paid is completely different to that of an employee. Independent contractors are typically paid through accounts payable rather than through payroll and are often paid through a third-party such as a staffing agency or managed services provider (MSP).

Things to keep in mind for independent contractor payroll management

Since the way that you should pay independent contractors is entirely different to the way that employees are paid, it’s important that you properly manage how you pay your contingent workforce. Contingent payroll management can be complex and confusing, and lead to risks such as legal compliance, budgeting and rates.

To ensure you are managing how you pay your independent contractors properly and removing any risk or overspending issues associated with your contingent workforce, make sure you do the following: 

Gain complete visibility into your contingent workforce

To have a true overview of payroll costs it’s essential that your company has complete visibility and control over contingent workforce headcount. This can be increasingly complex with your contingent workforce, where independent contractors are hired through different hiring managers, across various departments and through staffing agencies. 

To gain complete visibility and control over your independent contractors, you’ll need to implement an effective contingent workforce management strategy and integrate a vendor management system (VMS) into your management processes. This innovative technology will centralize your independent contract workforce and give you complete visibility into payroll spend. 

Build a centralized hiring strategy across all departments

As we mentioned in the last section, most contingent workforce management programs struggle with inconsistent and non-centralized management processes that allow hiring managers to hire independent contractors on their own terms - paying the rate they believe the worker is worth.

This leads to inconsistencies in pay rates. Independent contractors across different departments will be paid completely different rates, and your organization will be overpaying for talent. A VMS will help centralize that process to ensure all hiring managers are on the same wavelength, and pay independent contractors a fair rate. 

How can HCMWork help?

Improving your entire contingent workforce management strategy to gain better insight into independent contractor payroll issues is complex. Without the right resources, expertise and technologies it can be almost impossible to do in-house.

That’s why HCMWorks’ has created a contingent payroll management solution in which we can engage your independent contractors directly on your behalf. We will screen and vet them to ensure they are qualified to be paid as an independent contractor and not an employee, and then manage their entire life cycle with your organization.

This includes: 

  • Onboarding
  • Contract management 
  • Compliance management 
  • Payment
  • Offboarding
  • And much more!


Want to learn more about how HCMWorks can improve how you manage your independent contractor payroll, saving your organization money and helping you to make more-informed hiring decisions? Contact our team of contingent workforce experts today. We would love to answer any questions that you may have.

Tags: Contingent Workforce

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