The gig economy is booming, and more businesses are relying on contract workers to support their operations. It’s estimated that by 2024, over half of America’s workforce will have spent time as independent workers at some point in their lives.
The IRS treats these contingent workers differently than in-house workers and requires filing paperwork for each individual. As the number of independent workers is expected to increase, tax season will only get messier if your business doesn’t properly plan ahead. Accounts payable automation software can help streamline this process to save time and avoid penalties.
What tax collection typically looks like
Contract workers are considered a business rather than an employee, making any transactions a business-to-business payment. As such, the IRS requires your business to send a Form 1099-NEC to any contract worker to whom you paid more than $600 over the course of the year. (Starting next tax season, you may have to send a 1099-K.)
Easy, right?
Right — if your team has all the information they need to issue the form when tax time comes around.
Too often, however, busy finance teams neglect to ask for the necessary information (i.e., mailing address and EINS) at the beginning of the relationship. This means that during crunch time, accountants have to reach back out to workers to gather this information and then wait to hear back before they can issue the form. Or, workers will reach out as tax season gets closer if they haven’t gotten a form yet. Either way, there’s a lot of back and forth that eats up valuable time on both ends and provides ample opportunity for errors and forgotten forms to slip through the cracks.
Suggested reading: What’s the Difference Between a 1099 and a W2?
As businesses scale, this ad-hoc approach gets even more unsustainable and can lead to not-insignificant financial consequences. Penalties range from $50 to $270 for a single late form.
The benefits of automating contractor onboarding
Automating contractor onboarding puts your company in tip-top shape for tax season by ensuring all necessary information is collected upfront during the onboarding process. Workers can easily submit their information online, and your business can send 1099s to everyone at once in January. This eliminates the headaches that come along with manually reaching out to contractors during the busiest season of the year and is particularly valuable as your company continues to grow.
Suggested reading: When Does Your Business Need a W-9 from its Vendors?
What’s more, automating onboarding allows your company to strengthen its relationship with workers by making it easier for them to do business with you.
How Routable can help
Routable is an accounts payable platform with the simplestway to send business-to-business (B2B) payments. Our self-serve onboarding process can help your business simplify tax season.
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Real-time automatic sync: Routable stores all information collected from contractors and syncs it to your accounting software, so your records are always up to date.
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Ease of access: Rather than hunting down forms and worker information in your colleague’s email inbox, everyone on your team can easily access all required information in one spot.
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International onboarding: Routable can also assist with international contractor onboarding, making it easy for your company to abide by any relevant tax laws regardless of employee location.
Routable simplifies contractor onboarding, but there’s so much more automation can do for your accounts payable process. Learn more in these blog posts: