{"id":10027,"date":"2020-06-29T06:30:00","date_gmt":"2020-06-29T06:30:00","guid":{"rendered":"https:\/\/procomservices.com\/overview-of-independent-contractor-payroll-models-and-services\/"},"modified":"2025-11-19T19:42:45","modified_gmt":"2025-11-19T19:42:45","slug":"overview-of-independent-contractor-payroll-models-and-services","status":"publish","type":"post","link":"https:\/\/procomservices.com\/en-us\/insights\/overview-of-independent-contractor-payroll-models-and-services\/","title":{"rendered":"Overview of Independent Contractor payroll models and services"},"content":{"rendered":"

Payroll refers to the tasks an employer must perform in order to pay traditional employees. Contingent workers, such as an Independent Contractor, is not an employee, and therefore, must be paid  through a separate payroll model. These contractor services can also be outsourced to a third party.<\/p>\n

If your organization operates, or is thinking of operating, a blended workforce, it’s important to know the legal and tax obligations you have to your workers when it comes to contingent worker payroll.<\/p>\n

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Can Independent Contractors be on payroll?<\/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.  <\/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 to workers when it comes to payroll.  <\/p>\n

Types of Independent Contractor payroll services<\/h1>\n

Which payroll model is the best option for bringing talent quickly and cost effectively into your contingent workforce? Depending on your organization\u2019s acquisition needs, for instance – do you also require rate negotiation services<\/a>? – below is a list of payroll models and risk factors to consider:<\/p>\n

Direct\/No Payroll Services<\/h4>\n

Risk level: High<\/h3>\n

Some organizations choose to run their contingent worker contracting and payroll functions internally, with responsibility spread out over a variety of departments– from HR, to procurement to accounting\/AP, but that isn\u2019t always the most efficient approach.<\/p>\n

This payroll model involves the organization directly handling all aspects of their contingent worker engagements. This includes onboarding and payment duties, with coordination responsibilities often placed on the individual hiring manager that is engaging the Independent contractor.<\/p>\n

How does the process work?<\/h3>\n

The organization is responsible for managing all aspects of the Independent Contractor payroll process, including:<\/p>\n

\u2022 The administration of payroll taxes and benefits forms.
\u2022 Payroll deductions.
\u2022 Submission to government agencies. <\/p>\n

Why would organizations use a Direct\/No Payroll services?<\/h3>\n

The organization may prefer to manage the payroll process internally due to perceived cost savings over hiring an outsourced provider.<\/p>\n

There is a higher level of risk with this payroll model since employees and Independent Contractors <\/a> have regulations and categorizations that may experience frequent changes.<\/p>\n

There is no structure in place to help manage contingent workforce costs or address compliance or risk management issues specific to these types of workers. It can be difficult for busy HR professionals to stay up-to-date with current laws, particularly for organizations with operations in multiple jurisdictions or those who employ exempt\/non-exempt, seasonal, contract or part-time workers.<\/p>\n

Informal\/Semi-structured Payroll Referral Program
<\/strong>Risk Level: Moderate (Costly)<\/h3>\n

This payroll service model is often not an \u2018official\u2019 company mandate \u2013 instead, it usually involves individual hiring managers referring the contingent worker to an existing approved staffing vendor. This process unburdens the hiring manager from having to manage the contracting and payroll onboarding tasks internally.<\/p>\n

How does the process work?<\/h3>\n

Hiring managers typically select organizations they have an existing working relationship with, resulting in simplified onboarding that accelerates the hiring process.<\/p>\n

Why would an organization use an Informal\/Semi-structured Payroll Referral Program?<\/h3>\n

The trusted vendor has also likely been engaged through the organization\u2019s procurement process, and already has all necessary legal agreements in place and meets jurisdiction-specific compliance requirements. These include things like, valid business licenses, tax remittance capabilities, payroll schedules, employee categories or a particular aspect of payroll calculations (insurance, workers\u2019 compensation, etc.).<\/p>\n

Though this payroll service model is generally faster and easier for hiring managers, it\u2019s difficult for organizations to track and manage its corporate spending of directly-sourced contingent labor.<\/p>\n

Furthermore, in this scenario, the organization typically doesn\u2019t use structured pricing models or pay rates. Using multiple vendors results in difficulty negotiating high-volume flat and\/or preferred fees for the hiring process, resulting in the potential for abusive vendor pricing.<\/p>\n

Single, Dedicated Payroller
<\/strong>Risk Level: Low <\/h3>\n

This payroll model involves a single outsourced service provider responsible for managing an organization\u2019s entire payroll record, keeping process across all jurisdictions where that company employs workers.<\/p>\n

How does the process work?<\/h3>\n

Using a payroll company represents the company\u2019s decision to treat contingent labor hiring and management as a corporate priority, and offers benefits around:<\/p>\n

\u2022 Streamlining operations.
\u2022 Enforcement of established spend approval processes.
\u2022 Consistency in record keeping through a single vendor.
\u2022 Securing the lowest possible price for the service. <\/p>\n

Why would an organization use a Single, Dedicated Payroller? <\/h3>\n

This payroll model can be especially advantageous for employers who may operate in multiple domestic or international jurisdictions.<\/p>\n

Payroll companies lower an organization\u2019s risk by incorporating a single point of accountability and audit for all of the compliance activities related to contingent worker onboarding and management. This decreases the likelihood of overlooked short-term, contract or seasonal workforce records and worker misclassification.<\/p>\n

Checklist for selecting a trusted contractor  payroll vendor<\/h4>\n