Unlike Liquid, standard HR management and payroll systems are not designed for handling contractor documents, multiple payment structures, or freelance engagements.
Standard human resources management systems (HRIS or HRMS) are meant for companies with traditional salaried employees instead of freelancers and independent contractors. However, if you work with freelancers and incorporate various payment structures (for example, flat or daily rates instead of a salary), using HR management and payroll software can make things more difficult. Liquid offers a much more flexible and streamlined option to keep your business compliant while managing your 1099 workers.
HR management and payroll systems do not support automated onboarding processes for freelancers
Unlike traditional HR management and payroll software, Liquid offers an onboarding process that has critical compliance components built in. Liquid includes an automated flow to make onboarding extremely intuitive, easy, and fast, while ensuring proper compliance every time you onboard someone. For every contractor you onboard, you’ll have to deal with contracts, work orders, and W-9 or W-8 documents. These documents are essential for successfully managing engagements, meeting worker classification compliance requirements, and filing IRS Form 1099s.
Managing the critical documents and forms for freelancer engagements can become overwhelming if you don’t have an effective organizational system. Payroll systems were built for W-2 employees — not to capture or securely store critical freelancer and contractor documents and data. For example, your freelancers may be working through their own businesses (such as LLCs) and you may need to capture Employer Identification Numbers (EINs) rather than Social Security numbers.
Additionally, Liquid offers templates for independent contractor agreements, non-disclosure agreements, and other essential contractor documents for fast and easy onboarding. With Liquid, you don’t have to worry about organizing your documents since Liquid executes, manages, and stores all contracts and work orders.
Liquid supports more payment models than traditional HR systems do
HR management and payroll software also lack flexibility when it comes to supporting different payment structures for freelancers. For example, suppose you want to pay one freelancer hourly while you only pay another freelancer a lump sum when the project is completed. Payroll systems don’t usually support the variety of payment structures needed for managing 1099 workers, but Liquid has payment options for flat, hourly, daily, weekly, monthly, and quarterly rates. Liquid also enables you to provide a bonus incentive for your freelance workers.
In addition to having various payment options for work orders, Liquid is an integrated system: it includes invoicing and can be integrated with accounting programs such as QuickBooks Online and Xero. This means that within Liquid, your contractors can send you invoices, and you can make payments. Liquid also includes an invoice matching feature. You don’t have to worry about being overbilled since invoices are automatically compared to the corresponding work order. Liquid saves you time by automatically routing invoices to the right hiring manager.
HR management and payroll systems don’t separate employee and contractor data
It is important to separate contractors out from employees to avoid compliance issues. Startup lawyers highly recommend different systems for W-2 employees from your 1099 independent contractors so that your company is not at risk of penalties due to violations of tax laws.
Some companies will pay their contractors from their payroll system, such as Gusto, but this can lead to problems. If your company is audited, you must demonstrate that your independent contractor was clearly a contractor (e.g., supply all documentation, classification reasoning, etc.). Having separate employee and contractor management systems will support this immensely. Liquid is designed for independent contractor and vendor management and includes features to help you with the behavioral, financial, and relationship control factors that will keep you compliant with contractor regulations.
Even alternatives to HR software, like vendor management systems, have issues for freelancer management
Instead of HR payroll systems, some people opt to use vendor management systems (VMS) to avoid burdensome manual staff management for their 1099 workers. However, even vendor management systems have issues that can lead to complications when engaging freelancers.
Vendor management systems are meant for long-term engagements with a select group of vendors, meaning they usually require a comprehensive setup and approval process. A VMS is not designed to support hiring and managing multiple freelance workers at once or building a freelance talent database to tap on-demand. Unlike the typical vendors managed through a VMS, freelance engagements tend to be short-term, sporadic, and even one-off in nature.
Likewise, freelancers may choose to be contracted as individuals or as their business, which results in different data capture requirements. Like HR systems, VMS is not designed for the variety of payment structures used when paying freelancers.
A freelance management system like Liquid combines the best features of VMS and HR management and payroll systems in a way that is designed to make engaging and managing freelancers easy, fast, and compliant.
Go with Liquid
HR payroll systems are essential for managing traditional W-2 employees, but when it comes to handling a modern and dynamic contractor workforce, Liquid is the way to go. You and your business will be much happier with the streamlined, secure, and smart features Liquid has to offer, from contract storage to invoice matching – not to mention Liquid will help you stay compliant when engaging and managing freelancers. Make the smart choice for your business and go with Liquid.