Once you determine if a person is a contractor or employee, you can turn your attention to additional questions in regards to your work relationship.
When you hire an employee, you know that this person will be paid based on your payroll schedule. Maybe it’s once a week, maybe it’s every other week, or maybe it’s once a month. The decision is yours.
With a contractor, you don’t have the same level of control as you do with an employee (see this page on the IRS website). This could change your approach to how they are paid.
One of the most important questions to address is whether or not you should pay contractors hourly or weekly/monthly. While there is no right or wrong answer to this question, here are a few points of consideration:
Your preference
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Many companies prefer to pay contractors in the same manner as full and part-time employees. Using a weekly or monthly rate allows you to do just.
Conversely, there are companies that would rather pay contractors by the hour.
This is a matter of company preference, and you should base the decision on what works best in regards to your payroll setup and schedule.
There are millions upon millions of independent contractors in the United States alone. If you’re going to hire one or more contractor to do business with your company, make sure you know your preference in regards to payment. You want to make life as easy as possible on yourself (and your HR department).
The contractor’s preference
Even though a contractor is not an employee of your company, it doesn’t mean you want to treat him or her poorly. You still want to show this person that they are a valuable member of your team. This is why it makes sense to learn more about his or her payment preferences.
Some contractors feel like they have more control when they bill hourly, but others like the idea of weekly or monthly payments because it’s easier on them from a budgeting perspective.
This is something to discuss upfront, before both parties sign the contractor agreement.
Weekly/Monthly is easier to plan
When you pay by the hour, you expect your contractor to keep track of his or her hours. This is easier said than done, especially if you don’t have full trust in the person just yet.
Weekly or monthly payments are easier to plan, because you know exactly how much money you’re parting with (as well as when you need to send the payment).
If you’re looking at this from a planning perspective, a weekly or monthly setup is often the best approach.
Amount of work
In the event of a “one off job,” it makes most sense to settle on an hourly rate. You don’t want to commit to anything long term, as you don’t expect the relationship to last.
If you’re hiring a contractor to provide work on an ongoing basis, often for many months or longer, you can turn your attention to a weekly or monthly pay schedule. As noted above, this can make things easier on both sides from a planning and payroll perspective.
Pin down a schedule that works
Although the billable hour is coming to an end in many industries, you may find that this is best for your company at the present time.
The most important thing to do is pin down a schedule that both the contractor and your company can live with. The terms and conditions can then be outlined in the contractor agreement, ensuring that everyone is on the same page.
If you don’t address the question of how to pay contractors upfront, you could find yourself struggling to stay on track in the future. This can lead to payroll management nightmares for your company, as well as stress for your contractor.
How do you prefer to pay contractors? Do you have any thoughts on hourly, weekly, and monthly arrangements? Share your personal experiences in the comment section below.
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