Payroll Management: How to Deal With Outside Contractors

Every business you can name has a certain number of workers who are on the payroll. These people come in on their contracted days, are paid a rate specified in their contract, and are covered by the payroll system as it pertains to hourly rates, taxation and other deductions, and benefits packages. To make a long story short, these people are the company's "employees" or "workforce." They all have duties and, in combination with one another, do all the things that the company needs in order to run an efficient day-to-day operation.

There are other people who may do some work for the company, having been hired to provide a specific, ad hoc service. As a hypothetical example, we will take a company that organizes events and employs a dedicated staff with the requisite skill sets to ensure that the company is capable of providing a suitable service. This may include publicity experts, who specialize in advertising the events the company organizes; sales representatives, who travel to potential customers to pitch for contracts; and liaison officers, who interact with customers during the organization of events to ensure that things work smoothly up to and during the event.

Should this company find a gap in the market for Hispanic-themed events for Spanish-speaking customers, it may be to its benefit to ensure that the staff is conversant in Spanish. Some of the staff may well already speak a bit of Spanish, some may be fluent, and some may speak very little. It may be that the company finds there would be an advantage to hiring a Spanish teacher. As the daily work schedule makes it impossible for Spanish classes to take place every day, or for very long, it would make little sense to hire a full-time teacher and add her or him to the payroll. A the solution could be to temporarily hire someone in a consultancy role.

When hiring a consultant, the rules for payment are different from those for paying a full-time employee, and the payroll department must know and follow those rules. In these circumstances, it is worthwhile to have a company policy for dealing with outside consultants and contractors who do one-time, ad hoc work for the company. The rules governing taxes are not the same in such a situation. Indeed, depending on the cost of the work, it may be the case that the payment is unaffected by tax. Regardless of what the payment is, any tax to be paid on it will become the responsibility of the consultant receiving it. At the same time, the company making the payment may find that the transaction is tax-deductible; that is to say, it may qualify as a tax break, depending on the laws of the state in which it is paid.

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A typical process for dealing with outside contractors and consultants is for the payroll department to require an invoice pertaining to the work. In any company, money will go in and out with some regularity; and it is important to keep a record of every cent that is paid for services rendered. So, our hypothetical Spanish teacher would be asked to provide an invoice detailing the work performed, hourly rate, and payment required. It may also detail a deadline for payment and other information, such as any claim for reimbursement for the consultant's traveling costs and materials required for the purposes of the classes provided. As a preference, this should be provided in some official form, with a company or personal letterhead and the contact details of the consultant clearly stated.

Typically, the employer pays the consultant in whatever form has been agreed to between the parties. While bank transfers are preferred for compensating regular, full-time staff members, consultants often are paid by cash or check for convenience. The company's copy of the invoice should be marked as paid, and the company should provide proof of payment that should be signed by the consultant and kept by the payroll department to avoid disputes further down the line. This procedure helps the company challenge claims in which contractors state they have not received payment.

As well as keeping the invoices and receipts detailing the work performed and payments made, a company should keep a list of such transactions with reference numbers for each and details relating to the payment. This makes auditing easier. There is no hard and fast rule governing this, but details might include: payment status (paid/not yet paid/in dispute), payment method (cash/check/other), payment date, and any miscellaneous other details pertaining to the transaction.

As the transaction between company and consultant is not something that need concern the government, the two parties are required to reach agreement with each other; and for this reason it is important for a company to have the aforementioned policy for dealing with such situations. How the consultant handles the transaction is up to the consultant, but in any case the terms of the agreement should be ironed out before the consultant has any dealings with the payroll department.

There has been an increasing amount of attention paid to the rights of workers who seek employment leave under the entitlements laid down in their contracts and by law. Once upon a time, if you became sick or pregnant, or if someone who relied on you for care did, the choice you faced was stark. Either you carried on working to bring in needed income, or you resigned your position to address the situation that had arisen.

Although in the most basic terms your employer had no responsibility to make the situation easier for you by providing time off, this was far from a desirable situation. It led to many people finding themselves without a job and the financial support it provided when they most needed it, not to mention that anyone who just carried on working was unable to take the time to address the situation appropriately.

Over time, it became clear to employers and employees that some form of compromise was needed. Especially in the present day, where life runs at a much faster pace than it once did and consequently problems can strike at short notice, a bit of give and take has become vital for all concerned. From the employees' point of view, it is important to have confidence that they will be able to seek and provide care, while not having to worry about finding a new job or losing their present income. From the employers' point of view, the provision of some form of allowance that lets their employees take time off can mean the difference between keeping able employees and losing them. The resulting costs of losing employees include finding and training replacements, along with the less tangible costs of giving up a member of the workforce who may have had an effect on the workplace morale. For the workplace in general, the comfort of knowing that allowances exist will give employees the confidence and breathing space that enable them to do a job to the best of their ability without fearing what might lie ahead.

The main driving force behind this new confidence has been the creation of work leave programs that vary among employers but generally point to the same goals: allowing workers to take some time away from their job to deal with the priorities of caring for their family, recovering from an illness, or having a baby, while providing the financial safety net of sick pay or maternity pay and reassurance that they have a job when the personal crisis is over. In some countries, these programs are required by law and guaranteed by the government and a company's insurance package.

In the U.S., there is no law as it stands that requires a business to have such a paid program, but it has become an issue of best practice. The most popular employers, and the ones with the happiest workforces, will be those who provide such guarantees to their workers. And these companies will also be the best equipped to deal with the changes that many perceive to be inevitable when, as is expected, the federal government makes it part of employment law that some provision is made for paid sick leave.

Your company will make you aware of its own sick leave policy, including how long an employee can receive sick leave pay, at what rate the company will pay it, what actions to take when the paid period expires, and also any reductions in the pay rate according to a point system if applicable.These vary among employers because it is the employer's choice to have a sick pay policy at all. There may be greater uniformity if legislation passes to formalize what is already common practice, but for the moment a payroll professional is guided by the employer in this respect.

Maternity leave is the other main form of leave that employers customarily pay. Equal opportunities legislation shaped this practice when it became clear that any company unwilling to provide maternity leave to a pregnant employee risked far-reaching repercussions. Again, it is not an entirely regulated issue, and consequently there are major differences from one business to the other when it comes to maternity and paternity leave, but your employer will have its own specific policy regarding the issue.

Technically, under the U.S. Family and Medical Leave Act, employers are required only to allow workers 12 weeks of job-protected, unpaid leave in a year for maternity, paternity, and family health emergency issues. If your employer does not offer paid leave, then it will affect you very little in a payroll capacity. However, in cases where paid leave is a given, you need to know the system in place. Knowing these details will play a part in calculating wages, as it may be the case that you are still transferring wages and sending out pay stubs to people who are not currently at work. Knowing how much to pay, when to stop, and anything else required of you under the policy will be an important part of what you do as a payroll department employee.