If you have more than one W2 employee, you probably already have an accounts payable system for vendors, like Bill.com or Tipalti.
Those systems work really well for what they’re designed to do: Pay vendors. But for your independent contractors? Not so much.
Just because you’re familiar with a system doesn’t mean it’s the best one for every use case. That’s because traditional accounts payable systems just aren’t designed for independent contractors.
You need a purpose-built system if you want to work with contractors long-term. Here’s why:
Contractor Management is More Than Just Payment
When you’re working with an independent contractor, you need a system that can pay them. But you also need features common to your employee payroll system like ADP or Justworks for things like background checks and 1099 filing.
Which makes neither of these options quite work when it comes to independent contractors—forcing your team to build-your-own workflow with spreadsheets or one-off tools that try to combine these two systems.
Managing a contractor isn’t just about paying them on time. From the signed contract to details like the employee TIN and license verification, there’s a long checklist of items that accounting and finance teams need to make sure are exact:
- Signed contract
- Full legal name and business name, if different
- Address and business address, if different
- TIN verification
- Completed W9
- Signed NDA if needed
- Background check
- Insurance and license verification
- Payout method information
AP automation solutions are designed for the vendor record and are not able to calculate pay and automate invoice creation based on a record of work completed. They allow you to collect documents during vendor onboarding, but are not optimized to collect personal information securely. And they still leave you hanging on verification needed for their TIN, insurance, or licenses.
While they’re great at vendor management, they’re not the right solution for your contractors because they’re missing major features.
You Can’t Mess with Compliance
Most accounts payable systems leave out tax filing and compliance, leaving employers to cobble something together manually.
That’s because most contractor relationships require filing a 1099 form, including:
- Direct payments: If you’ve paid a contractor directly more than $600 in a calendar year, then you need to file a 1099 form. This counts whether you’re using cash, checks, or electronic transfers.
- Indirect payments: Same goes for indirect payments, such as a payment processing company on behalf of a contractor.
- Payments for both goods and services: Payments for both goods and services, such as materials and labor, are reportable. However, payments solely for goods are not reportable.
- Non-employee compensation: Ensure that the individual receiving the payments is not an employee of your business. This includes any individual who is not considered an employee for tax purposes, such as a freelancer or consultant.
Making a mistake here means issues for everyone—because we all know how easy the IRS makes it to file. Tax season is already a challenge, and working with contractors makes it even more difficult. (Imagine how your contractors feel juggling multiple clients!)
The Right Platform Helps You Manage the Entire Contractor Lifecycle
It’s the people you hire that make a business go from good to great.
That’s why managing your contractors effectively—from a smooth onboarding to a tax process that contractors don’t have to worry over—means building a relationship with them. If they’re busy trying to figure out when and how they’re going to get paid, they won’t be giving you their best work.
Wingspan allows employers to effectively reduce cost, improve compliance, and retain top talent by solving the problem holistically and treating contractors as people, not a bill to be paid.
With Wingspan, you get:
- Automation: Give your contractors complete transparency over their outstanding invoices. With Wingspan, you can create automatic recurring invoices so your contractors get paid without having to go back-and-forth.
- Standardization: Create a smooth onboarding process that gets your contractors up and running quickly. Contractors can securely fill out W9s, ACH forms, and any other onboarding information your team needs to get them working as soon as possible right in Wingspan.
- Self-service: Wingpsan’s admin console makes it easy to handle every aspect of contractor management. If either party runs into any issues, our dedicated support team is here to help.
