Is Contract Labor Considered Payroll?

Building an agile workforce is critical to succeeding in today’s market where competition is at an all-time high and market conditions are constantly changing. To stay flexible, more and more businesses are complimenting their internal employees with contingent workers. 

Contingent workers are also an effective way to reduce fixed labor costs, while ensuring that your business can also meet fluctuating demands and sudden increases in market interest.

While some businesses may just add these contractors to their payroll to simplify processes, this is the wrong thing to do. Paying an independent contractor is much different than paying employees.

How contingent workers differ from your employees

Employees have an employment contract. They are usually hired on a full-time, part-time or contract basis but there are a few other employment types. They also reap the benefits that employment brings.

A contingent worker is hired for a specific project and their contract ends once the project is complete. Usually they own their own businesses or work for a staffing agency that hires out talent or services and their work is spread across multiple companies.

While they agree to terms, such as pay, deadlines and outcomes, they control how the work is completed. They also supply their own tools.

Contingent workers can be paid an hourly rate like employees, on a project-by-project basis or a set amount for a specific time period. Since these workers are defined as temporary in nature, they aren’t entitled to typical employment benefits, including salary, overtime, vacation time and pay, sick pay, and health coverage. As the company hiring them, you also aren’t required to remit taxes, pay employment insurance or pay pension fees. 

As such, the process for paying independent workers is completely different from paying an employee.

Instead, independent contractors are usually paid through account payables.

Because of the complexities involved in distinguishing employees from independent contractors, this process is complex and must be properly managed. If not, it could lead to compliance risks, problems with budgeting contingent labor and higher rates of pay.

To reduce risks and simplify the process of paying contingent workers, consider these two tips:

To ensure you’re in full control of your contingent workforce costs, you need to make sure you have complete visibility over your contingent workforce management program. This can be a tedious job when contractors are hired through different agencies and hiring managers across different departments.

With the right tools, however, gaining visibility can be easy.

Most companies struggle with managing contingent workforces. This is usually attributed to management processes that aren’t centralized in one place. Instead, hiring managers across all areas of the business have their own systems and terms for hiring contractors. This can lead to inconsistencies and paying higher than necessary rates.

How Contrax can help

Don’t have the expertise and resources required to implement a contingent workforce management strategy that gives you full visibility and control over contingent workforce payments? 

Contrax is here to help. We have a range of contingent workforce management solutions - from vendor management system technology, managed service provider programs and MSP Lite programs - to help. 

Our expert services will ensure your organization has complete oversight over its contingent workforce, so that you can maximize the results from your program and mitigate some of the common risks associated with managing contingent labor.

Interested in learning more about how we can help your organization reduce costs and improve contingent workforce talent quality? Book a meeting with our team today.