How to Pay Independent Contractors

That sounds simple, but there are many things to consider before you venture into the world of independent contracting. 

What is an independent contractor and why should I consider hiring one?

Independent contractors are self-employed people who perform services for other businesses or individuals. They typically perform these services for more than one client, and they decide where they work, as well as how they work. An independent contractor usually doesn’t receive equipment but uses their own. 

In most jurisdictions, it is precisely the degree of control that an individual has over their own work that establishes their status as a contractor. Crucially for businesses, any contractor that you work with must handle their own tax obligations, and you are not liable for tax deductions or contributions.

However, there may be some administrative hoops to jump through - more on that later.

When hiring a contractor makes good business sense: contractor use cases

As we said earlier, you don’t have to get into the weeds of tax compliance when you work with contractors. But the advantages of being a client rather than an employer go far beyond that:

Opening the door for talent

Contractors typically choose to be contractors because they have skills and qualifications that make them valuable to you. In an era of unprecedented global talent mobility, companies stand to gain a great deal by attracting highly skilled independent workers.  

Faster onboarding

If you’re hiring a contractor, you’re getting a bundle of skills and experience. You don’t need to provide training or long onboarding in order to get gears turning. You also don’t need to roll out equipment or cover office costs. 

Quick turnaround and execution

When you need a job done fast, to a higher standard, and on a short term basis, it’s likely that an independent contractor will be the best fit. In these cases, it just doesn’t make sense to offer full-time or permanent employment.

That all sounds great, but is there a catch? In a way, yes. Companies who work with contractors need to be absolutely certain that they are not misclassifying employees as independent contractors.

That is likely to attract the ire of regulators, and many countries are moving to close loopholes around employers who misclassify. For a deep dive on that vital topic, read our comprehensive guide to misclassification.

How to hire and pay contractors the right way

So, you’re ready to head out into the global talent pool to find some game-changing contractors with interesting surnames. Here’s what you need before you start:

Airtight contracts that protect everyone

Agreements with independent contractors look very different to employment contracts. For example, they don’t include benefits or special provisions for leave or sick pay.

But they do need to be very clear, enforceable and mutually agreed on. For companies who are hiring remotely or internationally, it’s all the more important that these agreements are airtight, for a number of reasons:

Who’s in control?

Unlike employees, contractors aren’t under the direct control of the companies they work for. Contracts must clearly outline the scope of work and all relevant requirements. 

Getting everyone on the same page

It’s incumbent on clients to make sure that their contractors understand what’s in it for them: hourly rates and payment cycles need to be meticulously defined and agreed upon. Serious problems can arise if this doesn’t happen at the beginning.

Who owns the IP?

In contrast to an employer-employee relationship, intellectual property rights do not automatically transfer to the client.

Typically, independent contractors retain these rights. If that’s a dealbreaker for you, then it’s vital that any contract you give to an independent clearly defines that you expect IP rights to transfer to you.

After the (digital) ink dries: contractor onboarding

Once an agreement is in place, you need to bring the contractor on board and enable them to do their work. If you’re hiring remotely, it’s important that this process is smooth and easy to follow.

You’ll need to store all relevant information, including clear role descriptions. This can protect your organization in the event that questions are raised about classification down the line. 

Invoicing and payment

Contractors aren’t employees, so their payments are not part of a company’s payroll. In terms of the United Kingdom’s IR35 regulations, contractors are also referred to as “off-payroll” workers. 

Instead, contractors send invoices, either as individuals or through an entity that they themselves own. This can become an administrative challenge for the client.

Processing multiple invoices, originating from different locations, and in different currencies, is administratively intense. If it’s handled manually, errors can easily creep in - and late or inaccurate payment is one of the quickest ways to sour a relationship with a contractor. 

Companies that earn a reputation for sloppy payment processes find it hard to attract independent talent, so getting it right is vital.

To make matters more complex, some countries require international countries to pay contractors in their own currencies, and through specific banks. If this is starting to sound like trouble: it is.

Playroll: many contractors, one invoice

Playroll’s contractor platform removes the risk and the hassle from contractor invoicing. Teams who use Playroll no longer have to face a deluge of invoices.

Instead, they can consolidate all the contractors they hire through the platform into a single invoice. Playroll disburses the funds from there, in the appropriate currency, and on the agreed payment cycle.

Alternative of paying international contractors

For companies who don’t have Playroll (yet), and are willing to wade into the administrative quagmire of invoicing and currency conversion, there are other options.

Global payment platforms and international bank transfers are common methods that companies use to fund their contractor teams. But these can be difficult to scale because of the time and expense they inevitably involve.

Getting it right from the beginning: Playroll contractor onboarding and payment

Playroll simplifies the process of hiring, onboarding and paying contractors, wherever they are. Using our platform, recruiters can originate and customize contracts that clearly define roles and protect vital interests.

We’ve also replaced manual invoice processing with best-in-class software that allows you to pay all of your contractors in a single, consolidated invoice. Contractors themselves can upload timesheets and documentation directly into the platform, enabling straightforward review and oversight.

They get predictable, timeous payment, and you get to sidestep admin overheads while building a winning global team.

Learn more about how everyone wins with Playroll by scheduling a demo with our team.