The end of the month rolls around so fast, and before you know it, it’s time to view, manage and pay independent contractor invoices again! If you’re relatively new to working with independent contractors, you’ll learn that invoices can vary dramatically!
In this article we will look at the different ways that freelancers might send invoices your way for the work they complete, and some tips and tricks for making the process simpler on your HR teams.
This article is part of our guide on independent contractors.
All freelancers have their own way of invoicing for their services
Obviously, your freelancers, agencies, consultants and independent contractors need to get paid for the work that they complete. As they aren’t employees – this gets handled outside of the usual monthly payroll.
The freelancer themselves usually takes charge of the way in which they invoice your company, which means they are very much in the driver’s seat. Each will have their own disparate ways of working, and while some will whip up an invoice in Microsoft Word, save it as a PDF and send it as an attachment via email – others might have an account with third-party invoicing software, or use cloud collaboration tools to send you a direct link.
The invoices will all look different, and have varied styles and formatting. This might not seem like a big deal when you’re working with one or two contractors, but if each department has half a dozen freelance workers, and twenty departments send those invoices to HR at the end of the month, the payroll manager is going to have a lot of work on their hands to sort through the paperwork and manually input the data. In addition, they might not even arrive at the same point in the calendar month, as some freelancers will invoice for individual tasks once work is complete, while others might send a single invoice at the end of each month.
Finding the gaps in your own business record-keeping
As all freelancers are ultimately their own business, no two invoices are going to be the same. In the UK for example, if an independent contractor is earning over £85,000 they will need to add Value Added Tax (VAT) at 20% on top of their service charges. In The Netherlands, if an invoice is under €100, it can legally be simplified, and the worker won’t need to include their Dutch Business Register number. This may well be simpler for the freelancer, but if your own local regulations dictate that you need to track taxpayer identification numbers or business registration numbers, this can leave you unstuck when it comes time for you to file. For example, in the US you need to file a 1099-NEC form for any independent contractor who is paid more than $600 in any given year. This will involve collecting information, including their taxpayer identification number. While this is for US citizens only, our Dutch friend above will still need to fill in a W8-BEN to prove that they are exempt according to the relevant tax treaty. If they’ve sent 7 or 8 “simplified invoices” throughout the year, and you don’t have their details – there’s nothing simple about the time it takes to chase up that information.
Having a granular view of each freelancer and their own local and regulatory requirements is really important, or it’s easy for details to fall through the cracks. The number one rule is that you want to have your own processes in place – so that no matter what an independent contractor is doing on their side, you’re compliant and have all the information you need.
This can be done with a thorough onboarding process, where you ensure the freelancer signs a contract that provides all the relevant information you’re going to need for your company’s filing requirements. Not only does this mean you have all legal documentation and taxpayer identification details up front, it also provides a streamlined approach to managing relationships with freelancers, including ensuring they sign an NDA or IP agreement where necessary, and setting out clear expectations in both directions for the scope of work.
Working out the best way of paying an independent contractor invoice
Another way that independent contractor invoices will probably diverge is in how freelancers want to get paid. Some will prefer a wire transfer, and need to share important transfer details like their bank’s IBAN and SWIFT, while others love the ease and immediacy of a PayPal or Venmo transfer. New options like Bill.com or Wise are becoming increasingly popular, and hey – it’s only a matter of time before someone asks you to pay them in Bitcoin. All of this complexity falls squarely on the shoulders of the payroll manager or HR team.
Our advice is the same – make sure that you have your own processes in place internally, and explain these to the freelancer at the point of onboarding. You don’t necessarily need to shift to meet their own payment or processing terms for their independent contractor invoice, as long as you are transparent and clear about how they are going to be paid, and they can see that your processes are straightforward and don’t add complexity to their own way of working.
Via Stoke for example, all HR teams can track their freelancer’s projects and milestones via a single, centralized platform for all independent contractors across the business. At any point, the freelancer can also sign in to their own portal and view tasks, or check payments are on the way, which arrive in whatever way they prefer.
From the business’ point of view, there’s no more sifting through disparate invoice formats, chasing up information, manually inputting data, or budget surprises across departments or stakeholders.
With freelance work becoming increasingly popular, and freelancers touted to be one of the main solutions to the talent shortage – managing independent contractor invoices is only going to become more essential. Do you have a solution in place?