Contract workers are great for short projects, filling skill set shortages on your team, accessing the best talent globally, and meeting your needs for a part time, flexible workloads.
This process can be cumbersome to manage, especially if you’re working with several contractors at once. This becomes particularly challenging for marketplace-style companies and other business models that can have thousands of new “contractors” every month.
If you have no idea where to start, but know that you must do something to cut down on the time you spend dealing with the admin work related to contract workers, then you’ve come to the right place. Below, we’ve compiled some tips to get you started in streamlining your W-8 and W-9 contractor processes.
Number 1 - Create a Central Place to Keep Track of Your Contractors
Create a method of tracking the status of each contractor, and the documentation they have submitted. It’s easy to get disorganized with the documents and emails between all the contractors you're dealing with. A simple method of doing this at first might be creating a simple Google Sheet, like below.
If you’re not tracking contractors at all, this is a great starting point that gives a few benefits:
This will also allow you to set up conditional formatting to highlight areas of missing information - like shown in the fields highlighted red in the image above.
Number 2 - Create a List of Payments Made to Contractors
Keeping track of all the payments made to each contractor during the tax year will save you hours (or days) of work at the end of the tax year.
If you’re using an accounting system and keeping on top of our accounts payable entries, this should be a simple export. One thing your accounting system won’t track is the amount of tax you withheld, if that applies to you. Typically, the withholding tax remittance to the IRS will be reported as a single payment to the IRS in your Accounting software, and not broken out on a per-contractor basis.
Again, a simple Google Sheet per contractor can help with this, like below:
Setting this up for each contractor can be a good first step to improving year end processes. The alternative to this would be digging through emails with invoices and reconciling them with the payments made do come up with this information, which is needed in the IRS filing.
Number 3 - Create a W-9 & W-8 Review checklist
This is a simple and powerful step to streamlining onboarding. The best way to do this is in a shared document with your team, so that everyone remains consistent in the onboarding process. The best practice here is making most checklist items yes / no questions, like the example below for a Form W-9:
You should create a similar checklist for Form W-8, and walk through some examples of completed Form W-9s and Form W-8s with anyone in your company who is reviewing the forms.
Once you’ve created both, make sure you run them by a tax consultant to insure that you’re covering all your bases.
Number 4 - Use a ESIGN-compliant platform to digitize signatures
Having a contractor print, sign, scan, and email their signed Form W-9 or Form W-8 is time consuming and takes an excessive amount of time. Many solutions such as DocuSign and PandaDoc are compliant with U.S Electronic Signatures in Global and National Commerce Act (ESIGN).
Using a solution like one of these will allow you to save you and your contractors time in the onboarding process and allow you to quickly sort through and store the onboarding paperwork.
Number 5 - Plan for growth and scalability
The tips above can be a great starting point for streamlining your contractor onboarding. If your current process is ad hoc and manual, these steps will improve your team’s productivity by orders of magnitude by implementing them.
Of course, these solutions will most likely be a temporary solution to give your business a quick win. Once you’ve implemented these tips, you’ll likely want to explore software solutions that digitize and further streamline the contractor onboarding as well as payment solutions.
There are software solutions that can:
There types of challenges are ones that can easily be solved in an affordable way with the right software solution. For example, Payment Rails provides all of these benefits to it’s merchants.
The tips in this article are quick-win type tips that cost little to know money, but can save you a ton of time when working with contractors and keep you compliant with the IRS. Keep in mind that these tips can be easily outgrown, and a more formal software solution is a better long-term plan.
Payment Rails does not provide legal or tax advice. This article and any other articles on our blog should not be considered legal or tax advice. Should you require legal or tax advice, please contact a lawyer or tax consultant.
Tags: Contractor Tax