Growing Competition for ‘1099 Talent’ Puts Premium on Faster Contractor Payments

With gig economy workers becoming increasingly hard to find, payments surety, transparency and speed are potent forces that can keep a company’s 1099 workers happy — and onboard.

However, many companies relying more on gig workers lack the internal systems or interdepartmental coordination to make this easy (or even possible) right now, which is bringing about an evolution in accounts payable (AP), HR time tracking and record-keeping.

Speaking with PYMNTS’ Karen Webster, Routable Co-founder and CEO Omri Mor said the default settings for money movement tend to be automatic AP systems set for ACH and check.

“If you surveyed the majority of companies in the United States, they know how to do that,” he said. “Moving money faster than that is a skill … based on knowledge of how payment networks work, and based on do you have enough resources internally to act against it?”

If they don’t, it’s time to get cracking as 1099 gig workers now enjoy a fluidity allowing them to move between gigs that pay better, faster and in more form factors.

He told Webster, “Because there’s no contract essentially to have them work for a long time, they’re always going to be looking for the best return on their time, which means the fastest way to get paid and the best ratio of work to cash.”

Part of the snag here is how different companies categorize vendors and 1099 workers, which gets into the entrenched notions around what a payment is, depending on the payee.

Mor said HR departments are collaborating more with AP teams. Still, it’s in the early days of “the education of HR to the AP team on why it’s important to retain and keep these folks happy, and the education from AP teams to HR about the process needed to record it differently.”

In solving this, he added, “My favorite part is getting operations and engineering to help say, okay, we know who we want to pay, we know how we want to record it now, how do we make it swift?”

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Connecting the Siloes

With the myriad types of gig workers being categorized differently by AP and HR departments, harmonizing the entire flow is a vital operational need with retention benefits.

Although ACH and check have traditionally dominated all 1099 payments, Mor said, “Let’s say you have two thousand 1099 workers and maybe 15% of them are saying I didn’t receive payments. You don’t want a ‘they said, we said’ conversation. You want a paper trail in your ERP, in your bank, and you want in audit trail of notifications between two parties to say we have proof that cash arrived on this date, can you please check your bank statement?”

This is as much a communications job as a task for HR and AP as separate departments. Big businesses settle large payments with clients through well-known AR processes, but that becomes a different matter when paying groups of gig workers far smaller sums. And before those payments are sent, companies must confirm the work was done in the first place.

Mor said that’s where collaboration between operations, AP and engineering is focused now.

He said, “A lot of that work is being done in their let’s call it database or spreadsheet. They’re looking at it in bulk. Once that’s good to go, then the question is how do we take that information and turn it into AP-ready formatting so money can be delivered, communication can be sent, and that instant gratification reward is there?”

Companies may allow cash withdraws by building many wallets, so the gig worker who worked 10 jobs and accrued $800 can withdraw from a wallet on demand, he said. “Other teams, whenever the job is done the cash is released. Those things are really an important level of confirming the work.”

He described a new Routable feature enabling teams to expose accurate line-item descriptions of work being done. This solves complexities in confirming completed work and payments made, making it easier for companies to reconcile and also for gig workers at tax time.

“It’s on them to report the revenue at the end of the year,” he said. “The easier you make it for them to understand, ‘I got paid on this date for this time for this work,’ the less questions there are; and the less questions there are, the faster you can go.”

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The Gig Economy Grows Up and Out

As a regulatory compliance consideration, automating time-tracking and payments to growing numbers of gig workers is a somewhat new challenge and a thorny area to navigate.

Mor said that “from a compliance perspective, if you’re thinking about shifting W2s to 1099s, or if you’re thinking about adding a new workforce, it’s really important to look at the state and federal classification for how many hours are they working, and what are they getting paid for? Are they working in your office or not? Those things are really important.”

Noting that business model and location “will dictate whether you have to hire contractors internationally, or you have to hire contractors in the United States,” Mor said.

 “When we talk to companies that are employing lots of 1099s, it is always about what do we want their end experience to be, because growth is dependent on the retention of a gig workforce.”

This set of issues will only become more pressing for more companies, given demand from healthcare to hospitality and beyond. As their ranks increase, the expectations of speedy and accurate payments will be a key retention tool across the many industries using 1099s.

“Right now, we think gig economy, we think delivery and driving, but in insurance, healthcare, real estate, you name it, we’re just seeing more and more folks choosing flexibility in work,” Mor said. “The more that companies are on top of it, and they make sure that they become experts in the delivery of funds, the speed of funds and the transparency, they’re going to be set up in a great way.”