What is the Best Way to Pay Independent Contractors? All You Need to Know


An independent contractor is an individual or business owner who does work for another company or another individual on a contract basis. An independent contractor is not considered an employee of the company where he/she works. Basically, the independent contractor is not under the direct control of the company.

When a worker is an independent contractor, the employer can control only the quality or result of the job, not the method through which work is done. The independent contractor must however, still meet the employers’ standard for them to get the job.

making payment/What is the Best Way to Pay Independent Contractors?

When the worker is an employee, the payer has the mandate to control how the output occurs. The employee enjoys benefits in their pay like health coverage, while the independent contractor has to fend for themselves as their payment is not inclusive of such benefits.  Unlike an employee, an independent contractor does not work regularly; they work when they are required to. An example of an independent contractor is a cleaning company that works for an office. The cleaners are not employees of the offices they clean but get paid for the work that they do. 

Benefits of Hiring Independent Contractors

When dealing with independent contractors, you can easily save on many expenses as you pay only for the work done; therefore, when work is not available, you do not have to pay them. Many employers hire employees who are sometimes absent from work for various reasons, yet they expect the same pay at the end of the month. Another benefit of hiring independent contractors is that you get to outsource non-essential tasks like IT and maintenance so that you do not have to set up a new department within your company. 

For instance, many offices prefer incorporating cleaning companies as independent contractors instead of having cleaners as part of their employed team. With independent contractors, you can easily terminate your relationship with them without needing a lot of paperwork as compared to firing an employee. When you hire an independent contractor, you do not have to cater for benefits such as medical care and social security tax.

Hiring independent contractors 

Before you employ independent contractors, ensure that they present to you their certification and taxpayers’ number. The hiring of independent contractors does not call for a lot of paperwork; therefore, you must take care not to be caught in a fraudulent deal. Ensure that if the contractor is a company on its own, then it is registered, and if it is an individual, then they are also registered under existing associations or organizations. 

For instance, if you are dealing with an individual who is an engineer, ensure that they are registered under an association of engineers or firm according to state laws. When it comes to payment, you may ask yourself, what is the best way to pay independent contractors? Payment of independent contractors may sometimes vary depending on the work done or generally on the agreement between the two parties; the employer and the contractor. Read on to find out ways you can use to pay an independent contractor.

Best way to pay an independent contractor

As stated, before ways of paying an independent contractor are dependent on the agreement that you have with them. You must, however, choose a mode of payment that will not cut so deeply into your finances. You have to agree with the individual or the company and for reasonable payment terms that do not negatively affect either of the parties.  The contract determines the pay rates. To pay independent contractors without interfering with your budget, you have set a payment schedule and structure.

 Keep the records of payment for verification when the need arises. You can pay independent contractors through direct deposit into their accounts; some can prefer cash payment, especially the individual contractors who do small tasks. Payment can be made through various methods depending on the contract or verbal agreement between the two of you. Payment can be issued hourly, monthly, or depending on the amount of work done.

All these payment methods can be suitable for your business, but you have to choose one that harmonizes with your financial capabilities. For instance, if you own a small business that is just establishing, the monthly payment method may not quite be favorable for you because this essentially means coughing up extra money to cater to the services of the contractors even when there isn’t work to do. As an upcoming company, you may want to lower additional and unnecessary use of finance. 

Hourly payment method

Hourly payment method enables small businesses to pay for more substantial projects in stages. The payment plan is quite affordable, and you can easily terminate the relationship if you can no longer afford to pay the contractor. An hourly payment plan enables you to pay only for the services delivered per hour. Hourly payment delivers flexible project scope and a flexible budget for the contractor. With the hourly payment mode, the company is able to track the expense of the work by auditing it hour by hour. The contractors can be paid at the end of the day in accordance with the number of hours they have worked.

 It is easier to pay the money in the hourly method of payment than cough up s lump sum amount of money at once to pay for a project. The disadvantages of the hourly payment are that the contractor may submit more hours of work than you had budgeted for; therefore, you will have to part with an extra amount of money to cater to the extra hours of work.

The other disadvantage is that the timeline of a project or set of tasks is uncertain. This means that you can not ultimately set aside a specific amount of money to pay for the work done as you do not know for how many hours exactly the project will take place. 

Monthly payment plan

You can pay independent contractors at the same rate as your regular employees. Independent contractors, especially that work under companies, would prefer monthly payment. On their own, they are just like any other employee working for a company. Monthly payments give you time to plan your finances well so that at the end of the month, you can comfortably pay for the services provided.

Paying the independent contractors at the same rate as your regular employees also help you to manage your profits. The records are easy to file; you just have to do them once for the employees and the contractors. The disadvantage of the monthly payment is that you can hardly trace the work done and might end up paying up even for days when there has not been service provided. Another shortcoming is that it is hard for small companies to keep up with this mode of payment.

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Payment per project or service delivered

This payment method enables you to pay the independent contractor at the submission and acceptance of the project or at the delivery of service. This payment method is suitable both for big and small companies. If you need service delivery, hire an independent contractor, let them deliver, gauge the efficiency of the service, and pay up. As simple as that. This method of payment is beneficial because of various reasons. One, you get to budget only for an exact project you need, and you do not have to pay for undelivered work.

Another advantage is that the structure and timeline of the project are well defined. Its shortcoming is that the contractor may add extra fees into the flat rate to account for his or her time and any additional work he might encounter in order to complete the assignment. Therefore, if you want this payment plan to be successful, you need to have a contingency plan for any major project changes. You can also prepare a limited budget for the contractors to work with so that any other expenses incurred will not require your payment.  

What is the Best Way to Pay Independent Contractors?

So, what is the best way to pay independent contractors? With all those discussions above on the variety of payment methods for independent contractors, it is easy to pick the best among the three. Paying independent contractors as per the project delivered is the most suitable way. You can be sure of great service delivery when using this method as payment is done only after the project is efficiently done.

The payment method also fits into the budget of both small and big businesses as you can sign up and pay for the specific service that you need. It is also easy to trace the structure and guidelines of the project when using this mode of payment. This payment plan also makes it easy to give restrictions to the independent contractor so that they work with your exact budget failure to which they will have to cater for their own extra expenses. This method enables you to have a well-laid budget for the project that you need. 

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