3 Ways to Pay a Temp Employee (Updated 2020)

3 Ways to Pay a Temp Employee (Updated 2020)

Maybe it’s the way our economy has quickly expanded and contracted. Or perhaps it’s the restlessness of the younger generation. Or, it could be the fact that technology has become so ubiquitous. However it happened, the definition of work has changed. Now, many of us no longer have permanent jobs the way our parents did. Instead of traditional permanent jobs, many of us have a series of gig jobs, which are, at the end of the day, temporary jobs.  

There’s a lot of good things about the gig economy, for both sides of the employment equation. If you’re a worker, you have a lot of flexibility in the jobs you take. You also have the freedom to walk away from an unsatisfactory gig. If you’re a company, you can bring in really high caliber talent without worrying about keeping them busy after the project they were hired for wraps up. Once a gig is finished, the worker leaves to go find their next gig, and their cost is no longer part of your overhead. But until that time, you’re going to have to pay them. And that’s where things get interesting.

temp employee shaking hands when joining a new team

How to pay a temporary employee

There are three different types of temporary employees – temporaries who work with employment agencies, independent contractors who are treated as a business, and short-term employees who will be paid via W-2 at the end of the year. The biggest difference between these types of temporaries is how they get paid.

Employment Agency Temporary

When it comes to finding and paying temp employees, most people are familiar and comfortable with employment agencies. An employment agency provides temporaries to your company. The agency takes responsibility for paying the temp employees and handling any administrative overhead, such as unemployment insurance. As far as the law goes, the temp is an employee of the agency.

Employment agencies can take a lot of the stress out of paying a temp employee, and if you have the right one, they can be very easy to work with. However, using an agency can significantly increase the cost of having a temp employee. On the other hand, having a temporary employee can be a great way to audition new talent. Of the types of temps out there, those who work through an agency are often the most open to a temp-to-perm hire. 

Temporary W-2 Employees

A temporary W-2 employee is someone who works for your company for a pre-determined amount of time, as opposed to when they decide to leave, or your company decides to separate them. They are paid through your payroll system and taxes and other legally required deductions, such as Social Security, are withheld from their pay. If you hire someone as a W-2 employee, even if it’s only for a pre-defined short-term basis, the employee has certain rights under the law, and your company has certain responsibilities. For example, you will need to pay unemployment insurance for them as well as worker’s compensation. If the individual otherwise qualifies for benefits, your company will be required to add them to your benefit rolls. When you hire a temp under these circumstances, it’s extremely important to make sure the terms of employment are clearly documented in an employment contract and followed to the letter. 

Independent Contractors

Another type of temporary is an independent contractor, commonly referred to as a1099 for the tax form they use. An independent contractor is, essentially, a business, albeit one that most likely has one employee, the contractor themselves. 

Since an independent contractor is a business, you are not responsible for withholding taxes or any other deductions, such as Social Security or Medicare. If your company pays an independent contractor more than $600 in one year, you will need to report the earnings to the IRS with the 1099-MISC form.

The good thing about working with 1099 contractors is that they cost your company less money in administrative fees. Because of this, it’s tempting to hire temporary employees as independent contractors. However, unless your company is very careful, they could end up owing substantial fines and face additional scrutiny from the IRS. The way the system is set up provides ample potential for abuse, and because it’s easy to treat someone as an independent contractor your company could be at legal risk for incorrectly categorizing temporaries as independent contractors without knowing it.

temp employee starting a new role

How do you categorize temp employees?

The difference between W-2 temps and 1099 independent contractors goes beyond how their withholding is set up. The IRS has provided information for businesses and taxpayers to determine who actually qualifies as an independent contractor. Here are a few handy points to keep in mind as you’re considering which category your temps fall into. 

You have a 1099, independent contractor if:

The individual provides their own equipment, such as a laptop.

Your company is not their only client, but rather, they have more clients

They work independently and don’t need a lot of training or direction

They set their own hours

They’re not required to work on-site

 

This list isn’t exhaustive, but it should help shed some light on the difference between an independent contractor and a short-term, W-2 employee. It’s always advisable to think twice before you categorize an employee as an independent contractor.

temp employee starting a new job

The Ingredients of a Successful Gig

So, now you have your temporary. Everybody is on the same page about what needs to be done and when it needs to be completed. You’ve ironed out payment details and everybody has signed off on the contract. It took a lot of work, but now, you can get started.

The first day a temp comes into your office is arguably the most important day in their contract, yet many companies don’t include temps in their onboarding. This is a missed opportunity because that first day is when the temp learns about your company, meets their teammates, and gets more detailed information about what they will be doing. So make sure you’re ready for the first day, to get your temp on a firm footing.

If your temp will be working out of the office, make sure their space is set up and ready for them

You don’t have to generate business cards or letterhead, but if you temp will be working at the office, you should make sure that they have a place to get started right away.

Make sure they have an internal email address and network permissions as well as passwords and access to whatever programs they’ll need to be a success

Depending on your IT department, it may take some time to get their access and permissions set up, and you may need manager authorization for the temp to have access to certain information. Try to get this organized and set up before their start date in case there are unanticipated problems.

Don’t forget parking and building access

Even if your temporary will work from home, they will need to be able to get into your building and parking deck. Make sure the necessary access cards are prepared for the temp before their start date so they can come into the office as needed.

Introduce your temporary and share contact information

At a minimum, the temporary should meet the people on their team as well as the project head. It’s always good to know who you’re going to work with, and depending on your office, it will be good for your people to know why there’s a stranger suddenly walking around. Your temp may only work with your company for a brief period of time, but an introduction can be a great way for the temp to smoothly integrate into your company’s culture.

The gig economy can be a great way to build your company. It’s also good for the gig worker, who can gain new experience and new perspectives, to say nothing of pay. It’s rare to find a win-win situation in modern business but using temps can definitely be one. Just be sure that you take the time to properly prepare the contract and be certain that everyone is aware of their expectations.

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