How To Pay Contractors
It doesn’t matter what industry you are working in, life as a contractor can be pretty fulfilling and rewarding, but also a little tough at times. Not as touch though as it can be for recruitment companies who may be struggling with wondering how to pay contractors. Contractors tend not to receive regular salary’s every month, like permanent employees do. Instead, they have to submit timesheets or invoices to their client or clients on a regular basis, which then need to be approved and processed before the contractor actually gets paid.
If payment is not authorised by the client quickly enough, which then leads to a delay in the contractor being paid or in fact, no payment at all, then this may be dealt with as a breach of contract – which can leave the client liable for any debt recovery action that is taken by the contractor. On top of this, the client may also be seen to be in breach of contract and so the contractor would be within their rights to stop work on the project. In order for this not to happen, clients must make sure that contractors timesheets are signed on time and payments are processed quickly.
Weekly Timesheet Cycle
If you are working with a client who is used to working with permanent employees they may know how to sign off their employee’s expenses claims on a monthly basis, but they won’t be used to signing off their employees salary’s on a monthly or even weekly basis.
Contractors are very different from permanent staff. If they are working on a hourly basis, they will generally produce an timesheet on a weekly basis which breaks down how many hours they have worked, on what project. They will then submit this timesheet to their client for approval. Their project manager must then check that the hours recorded are accurate and then authorise them. The approved timesheet will then be passed back to the contractor who will then send it to their agency to raise the invoice or they will raise the invoice themselves if they are operating as a limited company. Once the invoice has been raised, it can then be included in any invoice finance options that the company is undertaking.
Monthly Invoice Cycle
On the other hand, if a contractor is working on a day rate (rather than an hourly one) then they will usually raise a monthly timesheet which will then be submitted to the project manager for approval. Similar to the weekly timesheet cycle, once the contractor has received the authorised timesheet they will submit it to their agency for approval.
If the contractor is trading as a limited company, then they will send their clients a single monthly invoice which details not only what days they have worked, but what rate as well and the total. VAT will usually be added as well, because the majority of limited companies are VAT registered.
Depending on the process of the client’s business, the invoice will be checked and then passed to the HR or Finance department for payment. The contractor will then receive their payment by bank transfer or cheque, depending on what they have agreed, and it will be within the terms of the agreement – be that 7, 14 or 30 days.
What Can Go Wrong?
If a company is working with a lot of contractors then it can be hard to keep tabs of them all. This may lead to a situation where the client starts to believe that the contractor may be ‘padding’ out their timesheet by adding hours that they have not worked. However, if this is the case, then it can be easily rectified by checking sign-in logs or doing spot checks on attendance, and perhaps raise the issue with the contractor’s manager or other relevant people within the organisation.
Another thing that may go wrong with invoices, is that the client may mislay the invoice or timesheets and if this happens, they should always be honest with the contractor. Processes should be put in place to ensure this doesn’t happen, as this could lead to a claim of breach of contract.
It is essential for clients to ensure that their contractors are paid on time as not only as this is agreed as part of the contract but it will ensure continuing goodwill between the contractor and the client. A contractor who has been paid late, will look to their project manager and agency for a solution.
The world of recruitment and contracting can get quite confusing, but we are here to help. If you have any questions about recruitment factoring or any other ways to finance your agency, then please get in touch with us.