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The Importance of Paying Independent Contractors on Time

Spark Team

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Most contingent workers have multiple clients, so you can help ensure that you're getting the best of their working hours by paying your contractors quickly.

Of course you should pay your contractors on time, right? Yu-kai Chou, an expert on human motivation and behavioral science, has found that some business leaders actually believe that withholding payment for contingent workers, or contractors, is a savvy cash-flow management practice. So, there are those who feel it's an advantage to delay contractors' payments, but this can harm your business in several ways.

"People are not robots," Chou says. "They have feelings, emotions, insecurities, dreams, and needs. When a HUMAN is wondering whether they would get paid on time or not, they are not working as hard or creatively as they could be, and you are literally getting less for the same money you pay (assuming you intend to pay them in the first place, which would also be a savvy business thing to do)."

Why isn't it good business practice to delay contractor payments?

An independent contractor, also known as a contingent or gig worker, is someone who does work for another person or company. When you use an independent contractor, you direct the result of their work, but the contractor generally chooses how and when to do the work. 29 percent of American workers currently participate in the contingent workforce to some degree, according to a daVinci Payments report from last year. The same report cited that 86 percent of independent contractors prefer this method of work and 80 percent plan to do more.

If you found a highly competent independent contractor who contributed to the growth of your business, would you want to risk losing them to a competitor for not receiving their pay on time? According to ADP Research Institute, one in every six enterprise workers (those who work for a for-profit company with more than 1,000 employees) is a gig worker. In many cases, the number is even higher. In about 40% of enterprises, one in four workers is a gig worker. Independent contractors have the ability to choose to work for organizations that offer the best circumstances. Getting paid quickly is often the expectation and need for gig workers, who don't enjoy the benefits of a consistent paycheck.

In addition, if your independent contractors are worried, they won't get paid promptly, they might not dedicate their full effort to your projects. Let's say you hire a video producer to create a series of marketing videos for your business. His best hours, when he is most creative and productive, are 6:00 – 9:00 a.m. The video producer is working on several projects for multiple clients. Whose project do you think he is going to work on first, during his optimal creative time: The one who pays him quickly, or the one who pays according to their own schedule, or whose payments may be delayed by manual processing?

Most contingent workers have multiple clients, so you can help ensure that you're getting the best of their working hours by paying your contractors quickly. "Our brand and reputation are important to us, not just with clients and prospects but also with our extended workforce. We focus on paying our own freelancers timely when they help us with marketing projects because we know they have a choice of which clients to take on," says Cindy Hustveit, head of marketing at WorkMarket, an ADP company.

PYMNTS, a leading provider of online coverage of the procurement industry, reports that 84 percent of gig workers struggle to pay their bills. Having a system in place to track and pay contractors efficiently can help build strong working relationships with contractors by providing consistency and trust. While most contingent workers will complete an assignment with slow payment due to their work ethic and commitment, delayed payments can affect the quality of their work and make them less likely to work with you in the future. Losing good contractors will cost you each time you have to familiarize a new person with your organization and project to replace them.

Lastly, delayed payments can also interfere with your productivity when contractors call or email to inquire about their payments due to the time it takes time for your staff to respond.

Streamline payment of your contingent workers

Many HR and finance departments are still using manual recordkeeping and paper checks to pay contractors. This can slow down payment and isn't as convenient as the digital payment methods available. According to a Fiserv report, 31 percent of contingent workers have been paid with a paper check, while only 13 percent of them preferred them. The same report found that 80 percent of workers prefer to be paid electronically.

Contingent workers have tight networks and a sense of community. If you want to maintain a positive reputation and engage the highest quality contingent workers, it makes sense to pay them promptly and in the manner they prefer.

With WorkMarket, you maintain full control over how, and when, your contractors are paid, and invoices are easily accounted for. Learn more in this e-book: Freelance Management Systems 101.