Swapping Contractors for Employees? Better Have Good Payroll Software Backing You

A lot of successful businesses, small and large, choose to employ independent contractors for a number of reasons. One perk in particular that business owners find very attractive about hiring independent contractors over employees is the severe reduction in overhead—payroll, health benefits, and various other expenses.

However, hiring independent contractors does carry disadvantages, one of which is an unpredictable work schedule. Chances are good that you are not the only client that a particular contractor is in cahoots with. Because there is less of a commitment, a contractor may devote more time to other clients. Aside from lack of control, contractors also lack fixed rates. In other words, a contractor has the freedom to charge as much as market demand will allow. Of course, we cannot forget about the tax stipulations that go along with independent contractors too.

Some business owners are finding that the disadvantages associated with independent contractors far outweigh benefits, and are opting to make the switch from contractor to employee. Naturally, this brings about its own advantages and disadvantages.

Hiring an independent contractor means:

• Variable payroll (contractor set’s rates usually)
• No health benefits
• Tax Implications

  Hiring an employee means:

• Fixed payroll (wages, salary, commission, etc.)
• Health benefits
• Tax implications

Now, in looking at the factors above, what do you notice? If you are like a lot of business owners who enlist the aid of a payroll software program, then you probably realize that these are all factors are usually dealt with through most payroll software programs.

Obviously, as its name suggests, payroll software is going to deal with the payroll aspects of a business. As mentioned above, switching from an independent contractor to an employee means switching from what once might have been a constantly-changing pay rate, to a fixed hourly rate, wage, or salary.

Therefore, your payroll software will enjoy a set amount instead of a question mark every pay period. Remember, independent contractors enjoy the benefit of setting their own hours and pace, so the idea of an hourly rate or wage is out of the question. However, in hiring an employee, you are in charge of setting the hours. Essentially, since you can set the hours and the pay rate, you can pretty much estimate your payroll every pay period based on that data, instead of being thrown a wildcard.

Aside from calculating wage and salary requirements, most decent payroll software programs are also equipped with features that allow one to account for the added benefits including health insurance, a 401k plan. Naturally, since independent contractors generally don’t receive any benefits, changing to allow for these benefits might add to the payroll complications. However, investing in decent payroll software is a surefire way to alleviate this.

Lastly, hiring employees over independent contractors is going to bring about various tax stipulations. For instance, most businesses that employ independent contractors are not responsible for the obligations involved with paying payroll taxes. While some employers are able to do this with employees, most find themselves paying taxes when all is said and done.

Depending on which software program you have, then it may have added tax features to help you with this process. Some programs even offer free printable tax forms, both state and federal. Not enough? Well, in some cases, a good payroll tax program will even assist you with the filing and payment of your taxes to boot!

The important thing to keep in mind when making the switch from independent contractors to legitimate employees is that each factor has its own advantages, as well as its own disadvantages. Do your research, take stock of what each option offers, and make an informed decision based on that. It doesn’t hurt though to invest in good payroll software, as it can help you do more than just payroll.