How to Automate Independent Contractor Payroll

Managing contractor payroll is hard. It's especially tough for outsourcing companies that work with contractors in several regions, currencies, and legal jurisdictions.

Manual data entry and rushing through labor laws take a whale of time. The payroll manager considers tons of various factors – pay rates, items, withholdings, tax deductions., and whatnot. When the manager has been finally through with estimates, the contractor comes in with another last-minute invoice. These complexities may lead the company payroll to a total mess.

To never let it happen, you need to fix your contractor payroll management flow to be as good as it gets.

In this guide, I'll show you how to streamline the billing process for independent contractors and how payroll software allows you to automate contractor payments.

What is a contractor invoice?

An invoice is a formal request from an independent contractor asking the client to pay for a completed job. An invoice from independent contractors usually contains a list of rendered services, how much each service item costs, and the total amount to pay at the end. This is a legally binding document that reconfirms the scope of work done and the amount to pay.

Invoice templates for contractors

A typical invoice from independent contractors includes the following information:

• From (Contractor details)
• To (Client details)
• Invoice number
• Invoice issued date
• Due date
• Description of services rendered
• Rate/price per item/Hourly rate
• Total amount due
• Payment instructions

‍

How do you streamline billing for contractors?

A streamlined billing process for contractors is crucial. A good contractor billing system spares you the headache of missed deadlines, errors in payments, and unpleasant disputes.

An efficient contractor payroll management system typically contains the following components:

• Well-defined contract terms with pay rates, service descriptions, pay schedules, obligations, guarantees, and more.
• Productivity tracking tools like TimeDoctor or Toggl to accurately track billable hours in real-time.
• Accounting software like QuickBooks or Xero to generate contractor invoices from time and material data.
• Payment integration setup to process invoices and ensure the payouts reach the contractors in their location.

How contractor invoicing works on freelance platforms

Specialized freelancer platforms like Upwork or Freelance.com offer numerous benefits. On the one hand, the platforms protect freelancers from bad employers. And on the other hand, they give companies access to high-quality validated contractor profiles.

‍

‍

The benefits of managing independent contractor invoicing on freelance platforms are that:

1. Freelance platforms enable faster hiring. First of all, such platforms are really helpful in hiring and paying international contractors. The platforms allow companies to vet contractor profiles and quickly access a ready-to-use workforce.
2. The platforms ensure secure payments. For example, both Upwork and Freelance.com offer escrow to process payments only after the contractor completes the job. The money freezes in your account, and f the contractor fails to do the job, it can be returned to the company.
3. Freelance platforms provide a dispute resolution process. Both parties can start a dispute. For example, this can happen when the customer is unhappy with the service or the contractor gets the wrong payments.

The downside of managing independent contractors through freelance platforms is fees. They can make up to 10-20% of a contractor's earnings.

When a company works with the same independent contractor long-term, they usually move away from the freelance platform and communicate directly.

In this case, the company will likely want to add the contractor to its payroll system. Here is where they need to consolidate the contractor billing flow.

Let me show you how to do it on one efficient system like Juggl.

Steps to automate the contractor billing process with Juggl

Here is how you proceed with adding a new independent contractor to your payroll system:

Step 1. Add the contractor to the Juggl workspace.

Set up detailed profiles for each contractor, including the name, payment terms, pay rates, and payment schedules. You can assign contractors to the appropriate entity or project based on their work location or contractual agreement.

Step 2. Define the payment method.

Payroll integrations allow adding several preferred payment methods. This can be a regular bank transfer, payment via P2P apps (such as Paypal), contactless payments (for example, a contractor sends an invoice with a barcode to pay), or even cryptocurrency.

Step 3. Share access with the contractor.

The contractor accepts and onboards. Prepare a quick checklist for a contractor to get familiarized with the payroll software and opportunities.

Step 4. The contractor submits the timesheets.

The contractor logs their time or tasks, describing what the task encompassed. Alternatively, Juggl takes timesheets/task tracking from integrated systems such as Time Doctor or Jira.

Step 5. The manager verifies and approves the timesheet.

The manager reviews and approves the tasks performed and submits them to the payroll system. The Juggl system calculates the payouts based on the provided work hours and tariffs.

Step 6. The contractor gets paid.

The accountant proceeds with payments via the selected payment method. The contractor gets paid, and the system shows the status for payments as complete.

How to automate contractor payroll management – a checklist

Outsourcing and outstaffing companies often face the difficult question of how to choose the right payroll software for global hiring. I've been working in the outsourcing industry for many years. 

So, my checklist when choosing a contractor payment solution will look something like this:

Multi-entity support

For outsourcing firms, managing contractor payments across many entities within the same payroll management software is crucial. The multi-entity feature allows companies to process payments separately for contractors working under different entities. It ensures that financial data is distinct and accurately reported per project or entity.

Invoicing automation

Payroll integrations should include invoicing automation to streamline the billing process for contractors. These can be wire transfers, peer-to-peer payments via PTP apps (such as Paypal or WeChat Pay), contactless payments (for example, ApplePay or GooglePay), or cryptocurrency.

You also need to double-check that the country where the contractor resides allows transfers with your selected payment methods.

Tracking work hours and tasks

Managing timesheets or tracking work hours for contractors can be a real quest. Some contractors use per-hour billing while others charge for tasks performed. The manager needs to manually transfer and reconfirm the information from Excel timesheets.

A real life-saver is switching on time-trackers. They allow contractors to log work hours directly into the system, which then automatically calculates payments.

Reconciliation methods

Disputes over errors in payouts may turn into an avalanche of e-mails to and fro. A dispute resolution system allows contractors to view and reconcile their payments quickly.

For example, Juggl has an Employee Self-Service (ESS) portal where contractors can download their pay stubs and track work hours. This reduces disputes over payments because contractors can see their payments in advance.

Juggl’s power features for contractor payment automation

Here is what makes contractor invoice automation smooth in Juggl:

Fast contractor onboarding

Adding a contractor to the Juggl payroll software is fast and easy. You don’t need to enter a lot of information about the contractor – just the name, the type of contract, and payment terms.

You can even add an independent contractor without a contract, for fast tracking of the agreed terms and pay. Likewise, it is super easy to turn a person from a contractor to an employee or vice versa.

Automated invoicing process

The payroll automation software handles invoices. It automatically generates invoices based on logged hours or project milestones. It allows contractors to easily approve the invoice and send it for processing.

Automated payment processing

The software then calculates the amounts owed, initiates payments, and records transactions for future reference. The software supports batch processing to proceed with multiple payments at once.

Employee self-service portal

The Employee Self-Service (ESS) portal allows contractors to view and download their pay stubs and track work hours. This reduces disputes over payments because contractors can approve their payments in advance.

Reconciliation and requests

Contractors can reconcile any discrepancies directly. They file requests for bonuses or benefits. The software allows making requests for additional payouts or tracking deductions in the next pay period.

Multiple-entity and multi-contract management

In Juggl, you can configure multiple entities and manage them side-by-side. First, you enter the company details. Next, you assign contractors to the appropriate entity based on their work location or contractual agreement.

Customized workflows

Juggl allows outsourcing companies to customize workflows within the payroll software to match their specific needs. For example, use custom notifications to send alerts about the approaching pay date. Besides, you can send reminders to contractors to confirm their timesheets or submit invoices.

The benefits of automating contractor payouts through payroll software

Let’s sum it up. Automated contractor payments remove the administrative burden on the financial department. Besides, such systems increase transparency and trust when working with contractors. In fact, contractor payroll management systems offer feasible benefits on all sides:

Centralized payment processes.

Even with contractors scattered across different countries, payroll software can centralize payment processes, ensuring consistency. You don't need to log into various accounts and track data from multiple sheets. In the contractor billing system, you will get a structured overview of payments per person and total budgets.

Increased accuracy and speed.

Automated payroll software helps reduce errors in payments. Automation streamlines the entire billing process, including payouts and reconciliation. This frees up your HR and finance teams from routine to focus on actual work.

Enhanced compliance with labor laws.

Payroll software helps companies ensure compliance with local tax laws and regulations. This is particularly important when managing contractors in multiple countries.

Efficiency and time savings.

With manual contractor invoicing, you waste too much time on double data entry, copying and matching data in various systems. Automation comes in pretty handy, saving you lots of time and energy.

Streamlined multi-entity management.

This is particularly helpful for outsourcing companies that handle multiple business entities and dozens of independent contractors. Payroll software can easily differentiate payments by entity, ensuring accurate financial reporting. Moreover, managing cash flow becomes easier.

Improved contractor satisfaction.

Timely and accurate payments equal to contractor satisfaction. Which in turn reduces turnover. Because replacing one contractor usually amounts to six salaries on average (if you count full contractor onboarding and admin costs).

If you are interested to find out more about how Juggl can help you pay contractors faster, contact us for a free demo.