One of the top reasons so many independent recruiters hesitate to offer contract staffing services is due to payroll and the administrative headaches, complexities, and risks associated with it.
When you fill contract roles, you become the worker’s employer, which means you will be required to accurately pay them in a timely manner, as well as remit withholdings to the government, keep up with payroll requirements, set up a payroll system, keep accurate records, process time cards for hours worked, and more. This isn’t something you’ve ever had to do when filling permanent roles, and it can certainly be daunting.
As such, here are some items to consider when building a payroll business for contract and temporary placements:
The first step will be to open payroll accounts to process payroll. In the U.S., you have to register for an employer identification number (EIN) through the IRS. Further, depending on your local and state government laws, you might also need to apply for a local or state business ID.
In Canada, this needs to be done with the CRA, and requires a business number to do so. You can open the account online, by fax, by mail, or by phone using RC1B form. This will need to be done before the first remittance is due.
Next, if the contractor is being paid hourly, you will be required to provide time cards so the worker can track their time on the job. The time cards can be manual or electronic in nature.
The act of processing payroll will be time-intensive and constant. To do so, you’ll need a solid grasp of payroll requirements and regulations in the location the worker is employed. Once you’ve calculated their hours worked multiplied by their wage, it’s time to take care of all withholdings, including federal and local taxes, SSN or CPP contributions, workers’ compensation, other regional/federal premiums, etc.
During all these steps, you’ll ensure you’re compliant with all relevant tax and payroll laws, fill out all the appropriate paperwork, and keep track of deadlines. Payroll processing is made easier using the right software designed for your needs.
There are stringent deadlines that must be followed by all employers for withholding remittances. It will be important to track all relevant deadlines and send your remittances by their due dates to avoid late fees, interest, and penalties.
Of course, after you’ve processed payroll, your candidate will expect to be paid. This will require you to either cut checks, or set up a system for direct deposit. The employee will also receive pay stubs as well as a tax form (e.g. W2 in the U.S.; T4 in Canada).
Every step will be repeated during each pay period.
As an independent recruiter, your days are already filled with a variety of tasks, including recruitment, client services, sales, marketing, and more. It might be unrealistic to add payroll to your to-do list. Fortunately, you don’t have to. By outsourcing payroll to a back-office services provider, you can take all of these administrative tasks, the risks, and the burdens off your shoulders, and hand them to the experts instead!