Independent contractor (IC) numbers are growing, but that doesn’t mean working with ICs is easier than traditional employees. Even seasoned administrators get bogged down in negotiating rates, processing tax documents, and handling misclassification compliance. That’s because managing IC settlements in-house takes a ton of admin time and does little to solidify an arm’s-length relationship, which can cost you money—and create legal concerns—if you make even a small misstep.
Any business that partners with ICs can benefit from also partnering with a third-party settlement processor, which can reduce or even remove the time, cost and uncertainty related to such responsibilities.
1. Empower administrators by reducing challenges
Working with a settlement processor removes the guesswork. A specialized third-party payment processor, especially one designed specifically for independent workforces, delivers a variety of advantages that you won’t get from a general payments platform, including:
- Settlement-deducted insurance premiums. By automatically deducting premiums for contractually required coverages like occupational accident or cargo, the IC’s policy is always active, and lapses due to cancellations or missed payments are avoided.
- Line-item work details. Enable ICs to securely access digital settlement information and line-item work details (e.g., routes completed). This is especially helpful for master–subcontractor relationships as it seamlessly allows the master to see the work each subcontractor has completed.
- Third-party deductions and garnishments. Openforce can deduct wage garnishments, reserve account withholdings or third-party vendor payments directly from settlements. ICs can also authorize us to pay vendors for things like cash advances or fuel cards.
- Rate negotiations and invoicing. Being able to demonstrate rate negotiation and allow ICs to submit invoices provides an additional way to reduce risk by clearly demonstrating the contractor’s independence.
- 1099 processing and storage. Tax season can be less stressful for everyone when preparing 1099s no longer falls on your shoulders. Plus, a prime payment solution will also enable ICs to access those 1099s whenever they need them.
- Built-in checks to avoid issues like “B” notices. When a mismatch occurs between IRS records and IC tax information, the costs can be unexpected, but built-in ID verifications can stop these problems before they start.
- SOC-II compliance for ultimate data security. Strong data encryption protocols protect not only the contracting company but also the data collected to maintain a trusted IC partnership. Allowing ICs to engage with a secure, easy-to-use platform also instills trust that their personal information and payment data are safe.
The biggest advantage of leveraging a third-party settlement processor, however, is that you get a partner that can reduce a heap of administrative and compliance pitfalls, while also providing increased support, transparency and separation between you and each contractor.
2. Solving payments can solve other problems too
Partnering with ICs is beneficial for both productivity and bottom lines, but processing their settlements can become time-consuming and complicated. Fortunately, some software solutions geared toward managing independent workforces tackle all of the complex settlement tasks for you, which also helps create separation between you and the IC to support a business-to-business relationship. Openforce, for example, employs experts in compliance and can set up automatic ongoing compliance safeguards to ensure your workforce is always running optimally.
These clearly drawn lines between companies and ICs allow both parties to focus on boosting revenue while maintaining a professional, organized payment structure. Having a trusted process can strengthen your model against potential compliance issues such as misclassification claims. Using a third party’s platform can also accelerate onboarding and demonstrate the IC’s independent status by capturing all relevant documentation, from qualification checks to the independent contractor agreement.
The other benefits of such a partnership include:
- Fewer manual tasks. Although partnering with ICs allows companies to create a more flexible workforce, the administrative tasks that accompany this model can also create real-time difficulties for administrators who are charged with scheduling and paying ICs properly.
- Automated IC verifications and qualifications. Accurate IC verification and qualification is essential in highly regulated industries (like logistics or home health care). But they also come with a lot of processes and room for error. A third party’s software can automate these processes without eating into valuable admin time.
- A complete audit trail. Compliance paperwork is critical, but ensuring each IC is properly qualified, documented and paid can mean extensive, time-consuming manual processes—during which things can easily fall through the cracks. A good independent workforce management solution can provide a complete audit trail not just of payments but of qualification processes and compliance documents.
3. Get compliant while maintaining audit trails
The IRS has lengthy guidelines for classifying and compensating ICs. Like most government statutes and requirements, they are, in a word, confusing. The more types of ICs a company has, the more complex compliance and payments become.
One example is that the IRS requires all tax filers—both businesses and individuals—to include their Tax Identification Number (TIN) on all tax-related documents. This and other requirements often necessitate a complex organizational structure for companies that contract with ICs as they work to maintain positive legal positioning and tax conformity. With intelligent payment processing services, however, ICs are quickly and accurately onboarded and paid with full transparency and no manual errors.
But removing the guesswork from IC settlements does more than let administrators focus on the bottom line of the agreement—it solidifies the partnership by keeping ICs happy. Thus, your third-party partner provides you peace of mind: Since IC invoices are taken care of, ICs are more likely to complete work without interruption or dispute, ensuring that the terms of the agreement are upheld.
Even better, a good partner works with you to understand the specific requirements for your business and industry.
Exclusive solutions for unique business requirements
While working with ICs has become commonplace, each company and its IC requirements differ, especially when it comes to settlements. Working with a third-party payment processor may be one of the best ways to maintain an arm’s-length relationship and reduce the risk of misclassification claims.
But compliance isn’t the only part that matters. Your business type, structure, licensing requirements, industry regulations and contractual terms will all dictate your IC requirements. At Openforce, we work with you to learn your specific needs before tailoring our software solutions to serve your workforce.
Openforce is the leader in technology-driven services that reduce operating costs and mitigate risk for companies using independent contractors. Our cloud-based applications help companies and contractors alike achieve more sustainable, profitable growth by removing financial, operational, and compliance barriers to getting business done.