Accurate and prompt payments are essential factors when planning to hire contractors. While there are some similarities between hiring full-time employees and contractors, managing payroll for contractors is quite different.
The penalties for violating payroll and employment laws can be severe. In some countries, employers get a fine and jail time for violations. It can be challenging to sufficiently pay contracts without the correct information or tools.
This article highlights the different contractor payment solutions, methods involved in choosing the ideal payment methods for contractor payments, and how Skuad enables prompt and accurate contractor payments for global organizations.
Types of contractor payment methods
Employers can choose from traditional methods to modern online channels to disburse payments. With more security and a global reach, you can quickly hire and pay contractors anywhere in the world. Explore these contractor payment channels and choose the one that suits you:
Before the advent of modern or online payment methods, people relied on checks. It's simple. Checks are more suitable for paying contractors in the same country. A check displays the account information of the issuer. It also takes relatively long to reach the recipient by mail.
It's more advantageous to use credit cards for secure payments instead of using checks. The independent contractor may need to open a merchant account to use credit cards for transactions. This account makes them eligible to receive money from clients. Users also prefer this method for the customer support credit card companies provide, as agents are generally on-hand to attend to queries. Credit card companies also have zero tolerance for fraudulent activities and are extra alert to shady transactions. They are generally quick to trace payments, resolve issues, or retract transactions when necessary.
Wire transfers are one of the best payment methods for a long-term client-contractor partnership. You can pay contractors at home and abroad through this means with ease. It usually takes longer to pay contractors outside of your country than it does to pay those domestically. You can often process domestic wire transfers between one and three days. Meanwhile, international wire transfers can take up to five working days. Reversing payments can be a long and complex process using this method. It's advisable to use this method for contractors who have a long history of working with you.
Online payment systems
These payment methods are perhaps the first choice for freelancers working for clients globally. From Wise (formerly Transferwise) to PayPal, some online payment solutions are already household names in freelancing. First, the client and contractor must open business accounts on these platforms. On these accounts, they can link their credit or debit cards and bank details to quickly process payments.
You can also pay contractors in different denominations and convert currencies to denominations of your choice. Independent contractors almost instantly received transferred cash. Contractors can also create invoices on these platforms, making it easier to process payments.
This is also an electronic money transfer medium clients can use to pay contractors. ACH transfer enables you to transfer money online from your account to the contractor's account. You can make a credit transfer where you "push" money to the recipient. Alternatively, you can perform a debit transfer where contractors can "pull" the money you owe them. It usually takes longer to process ACH credit transfers than debit transfers. This method may not be suitable for foreign contractors as many banks only allow ACH transfers within the United States.
Automated payroll platform
While there are numerous standard payment platforms, an automated payroll platform offers a secured and seamless payroll management process.
Utilizing a contractor payroll platform like Skuad makes paying contractors easy. Skuad's contractor payroll platform helps you calculate contractors' earnings, make necessary deductions, and disburse payments on time.
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Checklist to note before choosing a method to pay contractors
There are many ways to pay your contractors. Although virtually every method is effective, some suit your needs better than others do. Choosing the ideal method can also help you save money and time. Here's a checklist of considerations to make this decision easier for you:
1. Location of the contractor
Transferring money locally is usually cheaper than doing so internationally. Also, domestic transfers take a shorter time to process than international transfers do. Thus, if the contractor resides in the same country, you may choose to pay via local bank transfers. An ACH transfer is also a good option if you both reside within the US. The transfer rates are relatively cheap, and your contractor may get their money the same day.
2. Length of contract
Before choosing a payment method, also consider the contract or project length. For instance, ask yourself if you'd be working with the contractor long-term or if it's only a one-time partnership. For one-time projects, consider less complex money transfer methods. You may even offer checks, which are easy to issue and don't come with hefty charges.
3. Ease of processing payment
Besides speed, ease of processing payment is another crucial factor in choosing a payment method. Although some of these methods are relatively easy to utilize, some take ease of payment to a new level. Consider using contractor payroll solutions like Skuad. This platform makes it easy to calculate net pay and disburse payments.
4. Transfer speed
To compete with the top companies in your industry, consider your contractor's pay speed. Consider how long it would take to process payments before choosing a payment method. It takes even longer to troubleshoot transfer errors or retract payments. Thus, if it takes five or seven working days to send money, it might take more than a month to troubleshoot specific issues.
5. Customer support
When using a payment method, you want comprehensive support. Some payment methods offer better support than others do. While some platforms only operate on weekdays, others are available every day. Prioritize effective payment methods that provide you with unrestricted support.
Money transfer service providers usually charge certain fees for specific transactions. However, some charge higher prices than others do, especially when it comes to international transfers. For example, wire transfer charges can cost up to $50 for global accounts. That would be $10,000 to wire funds to 200 international contractors. You may opt for other options if you're uncomfortable spending such amounts.
7. Business or project size
Your business size also matters when selecting a payment method. Use the primary payment methods if your business is small and you're paying for a small service. Use ACH or local bank transfers for contractors within the US. Online payment services like PayPal are good alternatives for paying local and foreign contractors for small projects.
How to pay contractors
To ensure timely and accurate disbursement of funds to contractors, take these steps:
- Classify the contractor correctly. Misclassification of contractors can lead to severe penalties such as hefty fines. Convert the contractor to an employee or classify the contractor correctly to comply with labor laws.
- Determine the contract terms. In most regions, you must sign a contract with the contractor before commencing a partnership. Make sure the terms of the agreement are in line with labor laws.
- Request the contractor's account and tax details. You'll need the account and tax details of the contractor to file taxes and disburse payments. Request them early to facilitate payment of funds.
- Ensure the contractor fills out the ideal tax form. Although the contractor files taxes, you may help them identify the ideal tax forms. Contractors within the US file the W-9 tax form, while foreigners file the W-8BEN form.
- Calculate their net earnings. Before paying contractors, calculate their payments with a contractor pay calculator and deduct the necessary withholdings. Calculate the difference with a contractor pay vs employee pay calculator.
- Disburse payments. After calculating the contractor's net earnings, make contractor payments. It only takes a minute when you use Skuad's contractor payment platform.
- Remit withholdings and report payroll to the IRS. Report payment activities and remit withholdings to the IRS. Make sure you do this before the deadline to avoid fines.
Choose Skuad as your payroll platform for contractor payments
Skuad is a global employment and payroll platform that enables organizations to compliantly manage and pay contractors in over 160 countries without setting up a subsidiary or an entity. Skuad’s platform also helps organizations onboard talent, manage payroll and ensure compliance with country-specific employment laws and tax regulations.
While contractor payments can be challenging, complex and time-consuming, with Skuad’s platform, you can
- Accurately make prompt payments for your distributed contractors with no hassles or hidden charges.
- Put payroll on auto-pilot and enable quick payments to employees and contractors wherever they are in the world with a click.
- Make payments in over 100 currencies and your employees' preferred currency.
- Automate and consolidate payroll to a single dashboard.
- Make cross-border payments with a $0 transfer fee and exceptionally low exchange rates.
- Ensure the highest payroll security protects your IP and against any liability.
To know more about Skuad, book a demo today.