When it doesn’t make sense to hire full-time employees, organizations look for independent contractors with the expertise or bandwidth to handle a specific project. However, it’s important to note that these workers are self-employed. For this reason, independent contractors can negotiate payment options and schedules. If you’re looking to hire them, it’s best to learn how to pay an independent contractor.
Options for Paying an Independent Contractor
1. Checks
Although checks are simple, convenient, and relatively cheap, they’re also slow. After writing a check, you’ll have to mail it to the recipient so they can deposit the check into their bank account. With the entire clearing process potentially taking up to five additional business days, the contractor will have to wait until then for the funds to be available in their account. Since checks have a slow processing time, it’s best for one-off situations and not recurring payments.
2. Credit Cards
Unlike checks that have your bank account information printed, credit cards give you a layer of protection by keeping that information private and separate from your day-to-day transactions.
In addition, using your credit card to pay contractors allows you to dispute and resolve an errant transaction without putting your actual money at risk. Credit card companies usually offer zero fraud liability or cover the total amount of the charge until they resolve disputes.
3. ACH Transfers
An ACH (automated clearing house) processes transactions via computer-based networks. Moreover, an ACH transfer refers to electronic payments made between banks. You can set up one-time or recurring transfers when paying independent contractors. Although this requires contractors to share their bank account info with you, ACH transfers are relatively secure because they’re paperless.
4. Wire Transfers
Since wire transfers can make the funds available within 24 hours, they can be the best option for making time-sensitive payments. Since speed comes at a cost, you and the recipient may incur fees. For domestic transfers, you may have to pay around $20-$30, while fees for recipients are approximately $15-$20. Moreover, international transfers cost even more and may take a few days to process.
It’s worth noting that you can’t reverse a wire transfer if the recipient bank has already accepted it. For this reason, you shouldn’t initiate a wire transfer unless you know and trust the contractor you’re working with. While wire transfers work best when speed is paramount, the relatively high cost and risk associated with wires make them less than ideal for small and routine payments.
5. Online Payment Systems
Many business owners choose online payment systems, such as PayPal, because they offer security by keeping their personal bank accounts separate from the transactions they complete. If you’re looking to pay an independent contractor via PayPal, transfer the funds from your bank account to your PayPal account before transferring the funds to the contractor’s bank account.
However, if you plan on using PayPal in a commercial setting, your independent contractor will have to set up their PayPal business account. When making frequent or large payments to international contractors, you should consider more cost-effective online payment systems such as Xoom and Wise (formerly Transferwise).
Learn How to Pay an Independent Contractor!
If you’re looking to hire independent contractors to do some work for your business, contact us at ClearPath. We offer contractor management and payroll solutions so that you can get back to focusing on your business goals.