Managing a payroll for employees comes with the territory for most businesses, but with an increase in the use of freelance and contract workers rather than full or part-time employees, increasingly the business of managing contractor payrolls needs to be addressed. A contractor payroll is not operated in exactly the same way as an employee payroll system, as there are different obligations and responsibilities in a payer/contractor relationship.

There is specialist software available to help companies manage their contractor payroll, and Her Majesty’s Revenue and Customs (HMRC) accredits certain of these packages. However, the relevant information still has to be gathered and data has to be entered – all of which takes time. In fact the administration and accounting associated with a contractor payroll can be fairly time-consuming and many people choose to use a contractor payroll company to take on the burden of the work involved. This can prove extremely useful, as it offers contractors and freelance workers valuable support with the task of making sure the correct tax returns and other financial documents are filed as and when they need to be, and that appropriate copies of relevant documentation can be produced.

Users of Contractor Payrolls

As there are a number of different types of companies offering to streamline contractor payrolls, it makes sense to choose one that meets the needs of the business and the contract in hand. IT contractors, for example, have been particularly keen to make use of a contractor payroll system, finding that this suits their purpose and offers the flexibility they need, given their way of working. To this end, many freelance workers, including IT contractors, look to umbrella payroll companies, as this removes the need for workers to run their own company.

Some self-employed contractors look for a system that will ensure they get their gross pay, and then handle the tax affairs themselves. These are known as Invoice Only or Gross Pay schemes, and the payroll manager will issue the invoices and chase payment in return for a fee.

New, Seasonal or Expanding Business?

It is not unusual for new companies to use contract workers at the outset, rather than recruit a lot of staff. Freelance workers allow the company’s management to focus on building their business, including finding new leads and marketing, without the hassle of managing employees.

In the same way, expanding businesses and those whose work is seasonal also find it useful to appoint contractors to deliver some of their services, so that the number of people working can vary with the season, or be expanded to meet demand as and when necessary.

Benefits to Business

One of the principal benefits of contractor payroll is that it outsources the burden of financial paperwork to another organization for a modest fee. The process can reduce the levels of tax and national insurance payments a company has to make by offsetting them against genuine business expenses. This allows companies to reduce expenditure overall and ensures that PAYE and national insurance contributions are calculated correctly, and that all HMRC tax regulations are being met.