{"id":9178,"date":"2020-05-18T00:30:00","date_gmt":"2020-05-18T00:30:00","guid":{"rendered":"https:\/\/procomservices.com\/how-to-choose-a-contractor-payroll-model\/"},"modified":"2025-11-19T20:24:51","modified_gmt":"2025-11-19T20:24:51","slug":"how-to-choose-a-contractor-payroll-model","status":"publish","type":"post","link":"https:\/\/procomservices.com\/en-ca\/insights\/how-to-choose-a-contractor-payroll-model\/","title":{"rendered":"Understanding contractor payroll models and employer burden costs in Canada"},"content":{"rendered":"

Independent Contractor Payroll refers to the tasks an organization must execute to ensure Independent Contractors are paid correctly and on time in accordance with their contract or Statement of Work (SOW).\u00a0\u00a0<\/p>\n

Engaging Independent\u00a0 Contractors is practiced as a strategic outsourcing tactic around the world. Yet, contractor payroll is a complex,\u00a0time consuming\u00a0process, and staying on top of the frequent changes to legislation<\/a> can be problematic. Any oversights will result in non-compliance, which could lead to serious fines and negative employer branding.\u00a0<\/p>\n

Fortunately, however, there are methods to help mitigate these risks<\/a>, and organizations don\u2019t have to face the threats that come with a contingent workforce and complicated payroll models alone.\u00a0\u00a0\u00a0<\/p>\n

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What’s the difference between paying employees and paying contractors?\u00a0<\/h4>\n

Contingent workers can go by many different names – temporary workers, gig workers, contingent labor, Independent Contractors, freelancers, temporary talent, contractors or pre-identified contractors; yet they all refer to the same type of non-traditional worker: the contingent worker.\u00a0<\/p>\n

However, depending on the method in which the worker is engaged to perform the work – whether directly sourced through the company itself or by way of a third party, there exists separate obligations<\/a> to workers when it comes to payroll.\u00a0\u00a0<\/p>\n

How do I pay a contractor: What’s the best contractor payroll model for your business?\u00a0<\/h1>\n

If your organization is considering operating a contingent workforce or is currently re-evaluating your current program, below is a list of critical considerations about\u00a0contractor payroll models<\/a>\u00a0that will help form an insightful decision on which is the right option for your business:\u00a0<\/p>\n

Who is doing your payroll now? \u00a0<\/h4>\n

Any assessment should start with identifying who is managing your contractor payroll today.\u00a0<\/strong>Is your organization running an internal program, outsourcing payroll to a single vendor or an\u00a0adhoc\u00a0program where multiple firms could be\u00a0handing\u00a0your program?\u00a0 Once your provider is known, it\u2019s important to evaluate the processes, documenting key points \u2013 like onboarding, worker classification and incident management. Are they well covered?\u00a0<\/p>\n

What is the\u00a0contractor\u00a0experience like?\u00a0\u00a0<\/h4>\n

Review the contractor\u2019s experience with your current payroll model. Is this experience good? Are workers being paid on time and satisfied? Are you experiencing high turnover? Is it easy to submit time sheets and expenses or has the organization received complaints? Is the\u00a0contractor\u00a0experience compatible with your hiring brand? In today\u2019s competitive gig economy, providing a great candidate experience is essential.\u00a0\u00a0<\/p>\n

Is your program architecture open or closed?\u00a0\u00a0\u00a0<\/h4>\n

Can a vendor support all legal statuses, engagement types and job types (open architecture) or not (closed architecture)?\u00a0<\/p>\n

Who handles issue management?\u00a0\u00a0<\/h4>\n

It doesn\u2019t happen often, but workplace problems or incidents do happen, and there are frequently special considerations and compliance requirements when a contingent worker is involved. It\u2019s important to determine who is responsible for issue management for your contingent workforce, especially for issues that have HR\/contract and potential litigation consequences. Is there a process in place for recognizing and addressing these issues? What is the chain of command for escalations or decision making? If you\u2019re using a third-party payroll provider, are they fully engaged, as to protect the integrity of the intended contractual relationships?\u00a0\u00a0<\/p>\n

Is there a process in place to manage misclassification and non-compliance?\u00a0\u00a0<\/h4>\n

Classification is a critical step in contingent worker programs that relates to ensuring contingent workers are onboarded appropriately in the context of their worker status, overtime eligibility, workplace safety requirements and other important engagement management factors. Classification is a complex,\u00a0time consuming\u00a0process, and staying on top of the frequent changes to legislation can be problematic.\u00a0<\/p>\n

Any oversights will result in non-compliance, which could lead to serious consequences. To stay compliant and competitive, growing organizations will typically shift from a \u2018direct contractor payroll model\u2019 to a third-party payroll model, built around the selection of a dedicated supplier with established and verifiable procedures.\u00a0\u00a0<\/p>\n

Understanding employer burden costs<\/strong>\u00a0<\/h3>\n

Incorporated or Partnerships<\/strong>\u00a0
A corporation and\/or a partnership represent two options for contractors to register a business. With a registered corporation or partnership, contractors are responsible for remitting their own taxes, EI and\u00a0CPP\u00a0and are not eligible to receive any benefits, including statutory holiday or vacation pay.\u00a0<\/p>\n

The bill rate for an independent contractor that is either a corporation or a partnership is equal to the hourly pay rate of the contractor plus the margin or administration fee of the agency.\u00a0<\/p>\n

Bill Rate = Pay Rate + Margin\/Administration Fee\u00a0<\/h3>\n<\/p>\n

Registered Sole Proprietors<\/strong>\u00a0
A sole proprietorship is defined as an unincorporated business owned and operated by one individual. A contractor having a sole proprietorship will have to be registered for\u00a0a\u00a0HST\/GST number.\u00a0<\/p>\n

Sole proprietors are not required to receive any benefits such as statutory holiday and vacation pay. Sole proprietors being paid through a placement agency will be responsible for remitting their own taxes but will have the employee EI and CPP deducted from their pay.\u00a0<\/p>\n

The bill rate for a sole proprietor is equal to the hourly pay rate of the contractor plus the employer government burden and the margin of the agency.\u00a0\u00a0<\/p>\n

Bill Rate = Pay Rate + Employer Burden + Margin\/Administration Fee\u00a0<\/h3>\n

Bill Rate = Pay Rate + (Pay Rate\u00a0x\u00a0<\/i>XY%)\u00a0<\/i><\/strong>+ Margin\/Administration Fee<\/i>\u00a0<\/h3>\n<\/p>\n

Temporary Employees<\/strong>\u00a0
Temporary Contractors have not registered any business with the government. When these individuals are employed by a placement agency, the agency is required to deduct and remit all the same deductions as would face a typical permanent employee. The Temporary Contractor will also receive statutory holiday pay and vacation pay.\u00a0<\/p>\n

The bill rate for a temporary contractor is equal to the gross pay rate of the contractor plus the employer government burden and margin of the agency.\u00a0\u00a0\u00a0<\/p>\n

Bill Rate = Pay Rate + Employer Burden + Margin\/Administration Fee\u00a0<\/h3>\n

Bill Rate = Pay Rate + (Pay Rate\u00a0x\u00a0<\/i>XY%)\u00a0<\/i><\/strong>+ Margin\/Administration Fee<\/i>\u00a0<\/h3>\n<\/p>\n

The role of a trusted contractor payroll vendor\u00a0<\/h4>\n

One of these methods is outsourcing employer responsibilities like contractor payroll to a trusted vendor who will manage workers\u2019 wages, bonuses, and deductions, as well as\u00a0provide\u00a0support during the length of a worker\u2019s assignment(s).\u00a0<\/p>\n

The client partner will also identify and implement internal measures to protect\u00a0organization\u00a0from serious risks associated with a contingent workforce like severe fines, penalties and negative employer branding.\u00a0\u00a0
However, it\u2019s common for many organizations to think it\u2019s better to let their own HR and accounting departments handle contractor payroll. After all, they do so for traditional employees, right? Payroll stats disagree, stating\u00a0companies that outsource payroll save 18 per cent on costs over organizations that tackle it themselves.<\/strong>\u00a0 <\/p>\n

RFP Checklist for pre-identified contractor payroll vendor selection<\/h4>\n

Are you getting the most out of your contractor payroll program? Every organization\u2019s needs are different, but there are several crucial elements to keep in mind when evaluating a contractor payroll program. These include:<\/p>\n