Can your payroll system meet the challenges of the gig economy?

Published · 3 min read

The gig economy is booming: As of 2017, more than 57 million Americans consider themselves freelancers, a group that will make up the majority of the workforce by 2027. Whether companies need a web development expert to finish a new app, or packing and delivery teams for peak shopping seasons, companies large and small are using self-employed workers in more ways than ever. Can your payroll and accounting systems, used to the regular rhythms of full-time employees, adjust to this new era, and manage payments for freelancers?

Your finance operations must make room for project-based freelancers and hourly workers in addition to full-time employees. Here are four strategies to adopt a gig economy-friendly payroll culture, while keeping accounts payable humming along.

Know compliance classifications

The more gig-economy workers you hire, the more often you’ll deal with the tricky question of whether they should be classified as independent contractors or as employees. If you mistakenly label someone a gig worker, but they work onsite several days a week and don’t have other clients, your company and the worker could be hit with unpleasant tax bills. The IRS guidelines on independent contractors are helpful but might not cover every situation, so consult your legal or HR departments for extra help. Also, keep in mind these classifications are somewhat in flux as litigation plays out—another good reason to stay in touch with your legal and HR experts.

Improve onboarding and payment processes

Slow payments and poor communication about payment processes are one of the biggest headaches for gig-economy workers, says Robert McGuire, publisher of Nation1099, a news website for freelancers and consultants.

“One of the challenges is that freelancers are often handled through a different process than the rest of HR and payroll. In many companies, line managers handle these relationships much the way they handle purchasing of software and supplies.”

The result? Little consistency and no strategy in place to manage gig workers.

His advice: Create company-wide policies for routing contracts, invoices and payments from freelancers, and make sure all line managers are familiar with the process.

Account for gig economy workers’ time

Whether or not your business requires full-time employees to log their time, you probably need a way to track gig workers’ time separately. Jesse Harrison, founder, and CEO of the Los Angeles-based law firm, Employee Justice Legal Team, ran into this problem as his business took off and he added freelance workers like web developers.

Harrison asked his IT team to create a custom online platform to let remote and on-site gig workers enter their time. The system—now up and running—also tracks how much time workers spend on specific projects. “It allows us to avoid headaches and disputes,” he says.

Investigate alternative ways to pay freelance workers

Highly qualified freelance workers have plenty of employment options, but they may lack mechanisms for getting paid in traditional ways (i.e. checks or bank transfers). Some can’t afford the fees associated with maintaining bank accounts, while others prefer the convenience of online payment options like PayPal for business.

Tilr, a recruitment company whose technology matches workers with jobs, gets around this problem by paying workers via prepaid debit cards.

Whatever the solution, Tilr CEO Carisa Miklusak says payroll departments need to be open to alternative payment options because gig works may demand it.

“Think about your workforce strategy. How many W-2 employees do you need? How many gig workers? And what tools do you need to support each segment? Thinking about this process forces examination of a lot of your systems, especially payroll and accounting.”

McGuire agrees, noting that companies that get gig-economy payments right are the ones that will attract the best talent.

“It’ll be essential for companies who want to be an employer of choice to also become a client of choice,” he says.

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