There are a lot of benefits to using 1099 employees (independent contractors) instead of W2 employee, especially for small businesses. Cost savings, flexibility, and channel expertise are 3 of the leading factors that lead many to choose 1099 employees. While their benefits to the business are strong on the bottom line, managing them can be tricky. Creating a foundation for tracking and paying contractors is important before diving in and hiring. Here are a few tips on effectively tracking and paying 1099 employees.
Tracking Working Time for 1099 Employees
There are a lot of tools available digitally to track time worked and keep contractors focused on work. Not only will these tools keep everything organized, but they may end up saving your company money:
Time Tracking Software
Some of the more popular tools in this space include technology from Harvest and TimeCamp; but there are dozens of options. Which tool you use for your organization depends on whether you need live time tracking, basic clock-in/out functions, reporting, etc. In the end, they’re all designed to manage the time worked and keep it in a place that both the employee and employer can monitor.
Project Management Software
Since the early 2020s, many project management software companies include time tracking functionality. However, not all of them will integrate with billing/accounting software the way most of the Time Tracking software companies will. Not only do many of these systems include time tracking, but they also allow you to be proactive and organized with the assignment of projects and deadlines to a remote workforce. Along with tracking time worked, these can track the status of projects, flag issues, and keep priorities under control. A few examples of these include Asana, Basecamp, and Monday; but just like Time Tracking, there are dozens of options and the right one for your organization depends on your needs.
Employee Monitoring Software
These tools can be controversial, but are very effective at managing time worked to the minute. They are built to monitor usage time on certain apps, but some employers will use them to monitor how much time an employee is spending working on certain things like Word docs or Google Analytics. These offer the highest amount of security to the employer but can lead to perceptions of shaky trust to the 1099 employee. Examples of these tools include Teramind, Hubstaff, and Time Doctor; but like the other tools there are dozens available.
Mobile Apps
The mobile app version of time tracking offers mostly the same features as the above options, but are great for field workers. Especially useful in the driving space, app versions of these tools utilize GPS tracking for logistics on the road. Some contractors prefer mobile apps as they may not have consistent Internet access or power supplies for desktop/laptop setups. Apps like Everhour, Toggl, and HoursTracker lead the way on mobile, but there are many other options to choose from.
Spreadsheets
Google Sheets or Microsoft Excel are still tried and true for the cost-cutters out there. They both offer templates (or you can acquire custom templates) for tracking time worked by contract employees. Most are customizable and flexible. You’ll almost always get what you need using this method, but it comes at a time cost of having to enter data manually most of the time.
Payment Methods for 1099 Employees
Given that cost savings is often the leading factor in choosing to hire 1099 employees, many companies opt to use the least expensive method of delivering payment. However, there are some time and security savings in play when using software or payment methods specifically designed to keep records.
Paper Check
The traditional method of paying contractors is simply a paper check sent in the mail according to the terms of the contract. This creates a transaction record for accounting, limits the cost of paying the employee to the cost of mailing an envelope, and has very few security risks.
Direct Deposit
Associated with a cost from payment servicing companies, you’ll have an additional fee added to your contractor’s payment using direct deposit. This is one of the most secure ways of sending payment, and contractors will often prefer this to other payment methods because of its speed and simplicity.
Cash*
Cash is an option for paying contractors but may have legal limitations or tax penalties if not recorded in a formal method. *Certified tax professionals or accountants should be utilized when deciding on cash payment for contractors.
Electronic Payment Platforms & Apps
There is an abundance of payment platforms such as Venmo, Paypal, Zelle, Cashapp, and may others. These are very simple payment tools, and while they do create a transaction history it’s very important to understand your local laws around recording 1099 employee payments through these platforms. Paying through these platforms may require fees when using them for professional purposes.
Wire Transfer
While this payment method is more likely used in special circumstances such as international payments, it is still a viable option for paying contractors. Wire transfer almost always come with fees depending on your relationship with the institution sending the transfer.
Prepaid Debit Cards
This is another special circumstance method of paying 1099 employees. Many prepaid card companies offer “reloading” services. Employers can use this to simplify transferring money from their account to the contractor. Contractors will most often negotiate for this, but sometimes companies use it as a standard method.
Remember, when choosing the tools that will be right for you and your 1099 employees, make sure to consider usability, integration with your accounting systems, reporting, and device compatibility. It’s also important to note that method of payment should comply with local laws and regulations and meet the requirements of both the employer and the independent contractor. Additionally, tax laws may vary depending on the jurisdiction, so it’s important to consult with a tax professional to ensure compliance with your regulations.
