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Considerations when choosing a contractor payroll partner

Dec 08, 2020

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When choosing an Independent Contractor payroll partner, there are a variety of considerations a business must take into account before engaging the services of the third party vendor. In order to operate a successful contractor payroll program, it's essential that the trusted vendor partner has the capability to meet business goals with scalable options, security and privacy safeguards, enforced compliance controls and technologies that evolve along with the ever-changing workforce.

Before an organization can pay contractors, it's important for employers to understand that managing Independent Contractors involves a myriad of complex rules and procedures that differ from hiring traditional employees. For this reason, many organizations choose to relinquish the management of Independent Contractors to a third party vendor experienced in contingent workforce management in order to stay compliant, increase efficiencies and save on costs.

Other organizations, however, maintain the belief that payment of Independent Contractors, like traditional employees, should be handled internally between the company's Human Resources and Procurement departments; however, payroll stats disagree - as organizations that outsource their contractor payroll can save up to 18 per cent on costs over organizations that handle payment internally.

If you're considering outsourcing your Independent Contractor payroll responsibilities or re-considering your current program, the information below will help your organization make an informed decision.

Who is taking ownership of your Independent Contractor payroll now?

Before an organization can get started choosing a contractor payroll partner, employers need to understand their current program. Who is taking responsibility for payment of contractors and what type of model do you have in place?

Is your organization running a 'Direct Contractor payroll model'?

Any assessment should start with identifying who is managing your Independent Contractor payroll today. Is your large or small business running an internal program, outsourcing to a single vendor or using an adhoc program where multiple firms could be handling your contingent worker payroll?  Once your provider is known, it’s important to evaluate their processes, documenting key points like onboarding, worker classification and incident management - are they well covered?

When considering whether or not there's a need to engage a third party payroll partner is the right strategy for managing the payment of your Independent Contractors, it's essential to consider these qualifiers before committing to building a business case for outsourcing:

How large is your contingent worker program? Ideally, a program should engage at least 100 Independent Contractors.

Have you gone to market for competitive pricing and services? How will you ensure you will be paying a fair vendor fee? ​

Are you aware of what the current fair market pay rate is for Independent Contractors?

Are you satisfied with your onboarding processes? Is the process smooth and hassle-free for the Independent Contractors and your hiring managers? ​

Depending on your organization’s acquisition need, your responses to these questions will help determine if your large or small business will benefit from engaging the services of a third party payroll partner.

Why outsource contractor payroll to a third party?

Paying Independent Contractors is a complex and time consuming process, and staying on top of the frequent changes to legislation can be problematic. Any oversights in pay will result in non-compliance, which could lead to serious fines and negative employer branding.

To stay compliant and competitive with contractors' pay, growing organizations will typically shift from a ‘direct contractor payroll model’ to a third-party payroll model, either built around the selection of a dedicated supplier or through informal referrals to a variety of vendors. The chosen vendor will also identify and implement internal measures to protect the organization from serious risks associated with a contingent workforce and contractors' pay.

Outsourcing contractor payroll not only gains access to the types of technologies and expertise that reduces overall cost and risks associated with operating a contingent workforce, it also frees up time for employers to focus on their organization’s core business objectives.

Features and benefits of a successful contractor payroll partner

When considering a payroll vendor partner, it's important to have a checklist of qualifications. Leading vendor organizations will provide best in breed processes and procedures that deliver:

Proven track record of success

Does the vendor have tenure in its respective industry? A strong track record of long lasting and successful relationships strengthens the chance of program success.

Contractor rate negotiation   

Negotiating pay rates with your organization’s contractors is essential to achieving savings on payroll costs related to overhead, onboarding and even training, as well as reducing or eliminating the amounts an employer would pay in taxes and benefits for full-time employees.​ A good vendor partner can provide payroll savings from 8 - 15 per cent.

Subject Matter Expertise

Does the vendor have a reputation in the industry as Subject Matter Experts, and what is their approach to service delivery? An effective vendor should track contractors' and Hiring Managers' satisfaction through regular Net Promotor Score (NPS) surveys and manage costumer response time through Service Level Agreement (SLA) tracking. This will increase Independent Contractor satisfaction, reduce noise and improve employer branding.

Suite of Services

The vendor's suite of contingent labor services should have a broad perspective with a 360-degree understanding of the payroll program. Exchanging this valuable information of best practices and program improvements will strengthen the overall program for both Independent Contractors and your organization.

Back office excellence and technologies

The vendor should continuously be investing in the latest technologies in order to keep up with changes in the workforce, client needs and expectations of contractors. Custom workflows and integrations to meet client-specific needs will enable optimal operations. The vendor should also provide access to more complete, accurate data on contingent and traditional workers as well as greater visibility into these vital analytics. The technology allows a company to manage all worker and talent types in one central IT ecosystem, allowing employers to make better, data-driven business decisions.  

The importance of quarterly business reviews with your vendor partner

A Quarterly Business Review (QBR) is a meeting that an organization has with its vendors on a quarterly basis. The purpose of the meeting is not just to check what goals have been achieved in managing contractors, but to also determine what can be done to escalate business growth within the Independent Contractor payroll program. This is a valuable exercise for the following reasons:

A QBR will ensure all formal program satisfaction and challenge touch points are discussed. This will help determine a strategy for removing obstacles or capitalizing on immediate, current or future opportunities.

A QBR will provide the vendor with an opportunity to highlight any new technologies it has added to their services.

A QBR provides your organization with the opportunity to give feedback to the vendor in order to make program improvements​ and meet expectations of contractors.

A QBR provides your organization with an opportunity to assess the vendor's performance against program expectations and/or SLAs.


In order to effectively pay contractors, it's critical to have payroll solutions in place that protect the organization from payroll risks, but also meet expectations of contractors.

As an organization’s use of contingent workers increases, so too, do the risks associated with temporary talent. Yet, risk is one of the most talked about, but least understood areas in contingent workforce management. 

Does your organization have a solid framework for identifying contingent worker risk? Download our free Checklist on CW risk factors: 

DOWNLOAD CHECKLIST

 

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