Streamlining Contractor Payroll Processing: How a Tool Can Save Time and Effort

Independent contractors benefit organizations, but managing a large contingent workforce has challenges. Thankfully, there are payroll tools that can help make it easier to manage 1099 contractors. Contractors can clock in and out, request PTO, set up direct deposit, and view their pay stubs. 

Accurate Time Tracking

Time tracking is an important component of any payroll process. It can help you calculate your contractors’ costs, understand their workload, and ensure that the invoices you send out match their hours worked. A contractor payroll tool such as Roll by ADP will also ensure that your contractors are accurately tracked for tax purposes. A contractor payroll tool with automated tax calculations can simplify paying contractors by automatically calculating and withholding taxes, preventing costly mistakes. It can also make it easier to handle payroll for 1099 employees by allowing you to add them to your regular payroll runs or to pay them via direct deposit.

While using contractors may seem risky, many small businesses benefit from hiring freelance workers to fill specific needs and bring in extra work during peak seasons. They can also cut costs by not paying for benefits or overhead, making them a more cost-effective option than hiring W-2 employees. If you are considering using a contractor payroll tool for your team, look for one that has HR functions and can track worker certifications and other data. It allows you to manage contractors and employees through a single platform while providing direct one-on-one guidance from HR professionals. It also offers tools to help you comply with local, state, and federal labor laws.

Tax Filing

Contractors typically have specialized skills that are less readily available to full-time employees, and their shorter time to hire makes them an ideal solution for businesses with tight deadlines. They can also be hired temporarily for seasonal work, providing flexibility for many small businesses. When you use a contractor payroll tool to pay your contractors, you can be sure they receive the correct amounts based on their work and the tax rates associated with that type of contract. The system will help you avoid mistakes that can lead to costly penalties for misclassifying your employees as contractors when they should be W2 employees.

To ensure your contractors are properly classified, the software will collect their W-9 forms to verify their name and address and that they have a valid Social Security number or taxpayer identification number like an EIN. It will also automatically start backup withholding if the worker doesn’t provide their tax information promptly. When it’s time to pay your contractors, the software will send electronic and paper checks for them. It will also file 1099s with the IRS, including multi-state tax registration and all local, state, and federal taxes. It’ll also add your contractors to your regular payroll runs or do off-cycle runs if they’re paid on different schedules.

Tax Withholding

For businesses that pay contractors regularly, it’s important to have the capability to set up tax withholding. This ensures that employees are sent a manageable, affordable tax bill at the end of the year. A contractor payroll tool can help by calculating the correct taxes to withhold for each payment. In addition to tax withholding, having a contractor payroll tool that can support other deductions is also helpful. Depending on the nature of your business, you may have some contract workers who need to be reimbursed for health insurance premiums or other deductibles. A contractor payroll tool that can handle these types of deductions can save you time and money by allowing you to automate the process. Another essential feature of a contractor payroll tool is the ability to support 1099 classifications. Many small businesses hire a mix of W2 and 1099 contractors, from marketing specialists running specific campaigns to tech gurus who come in for a one-off project. A payroll system that can identify these different worker types is vital for avoiding costly mistakes from misclassifying contractors as W2 employees.

Lastly, it would help if you looked for a contractor payroll tool that also offers HR functions. This will allow you to merge your employee information and documentation into a single location for easier tracking and filing.

Payments

A contractor payroll tool can help you pay contractors via check or direct deposit. It should also easily import data from your time-tracking system and add earnings like overtime or bonuses. Consider paying workers with different tax withholdings or adding a per diem allowance. The best contractor payroll tools allow you to customize these settings for each worker and provide accurate calculations.

If you’re hiring contractors to work outside your office, you may have to send payments by mail. A contractor payroll service will help you prepare 1099 forms and submit them to the IRS. Some services will also print and mail copies to contractors. Choosing the right contractor payroll provider can be challenging. Look for a solution that offers a simple onboarding process, worker self-service and automatic W-2 and 1099 filings. You should also find a solution that makes it easy to run separate payrolls for contractors and W2 employees.