Did you know that today 70 – 76.4 million Americans are working as freelancers which makes for 36% of the entire U.S workforce this shows the importance of gig workers and freelancing / contract industry. In fact, by 2027 it’s estimated that the industry will grow to 86.5 – 90 million freelancers which will make it for more than 50% of the entire workforce of U.S.
Also, the IRS treats these freelancers differently than in-house or full-time workers. Businesses need to file the paperwork differently for each individual. So, you can imagine how much messier the paperwork is going to be in the tax season, if you don’t properly plan everything in advance. This is where the importance of accounts payable software comes in. AP Automation software does not only make your tax season smooth but also is beneficial for efficiency, cost savings, fraud prevention, security as well as compliance. To know how, continue reading this article.
What is the Gig Economy Tax Collection?
The IRS considers contractors / gig workers as businesses, so whenever you make a transaction to any gig worker or contractor, the IRS considers this as a business-to-business transaction. So, in this situation if you have paid any gig worker more than $600 (in one year) you need to file 1099-NEC so, the IRS knows about this.
Although this sounds easy, but is it really?
To file the 1099-NEC, your team needs to have all the information required at the time of onboarding. But too often the finance team does not collect the information like mailing address or TIN, and this makes for a busy and headache filled tax season. Because at the time of filing, your team needs to connect with the workers for the information and wait until the worker provides the information to issue the form. This takes too much time, especially in the already crunched tax season, which opens the chance of errors and mistakes. As a business this can not only take a toll on your workforce, but any minor mistake can cost you penalties ranging from $50 to $270 for a single late form.
How AP Automation Software Solves this Problem?
AP Automation software for any organization which uses the gig workers and contractors is not only an advantage but also a necessity in today’s times. Why? First of all, it takes out the most important part – Compliance. AP Automation software’s ensure tax compliance by automating tax reporting (e.g., 1099 forms) and maintaining accurate, audit-ready records, reducing regulatory risks and penalties. Additionally, they can also automate workflows to prevent fraud through secure approval processes and provide full visibility into transactions. With this, your businesses can benefit from faster invoice processing-cutting cycle times from week to days, while reducing costs and avoiding manual errors.
A business scales with time, so your AP should also be able to manage this expansion. The right AP automation software also scales effortlessly with your business, supporting multi-currency payments and global contractor compliance, which is critical for platforms managing thousands of freelancers. Integrated dashboards improve cash flow forecasting and enable timely, accurate payments, enhancing contractor trust and satisfaction. Ultimately, AP automation transforms accounts payable from a cost center into a compliance-driven, efficient powerhouse for gig-focused organizations.
What’s the Benefits of AP Automation Software for Gig Workers?
100% compliance One of the biggest advantages of using an AP automation software is it ensures accurate generation of necessary forms like 1099-NEC and 1099-K. This simple step drastically reduces your risk of paying the penalties which can range anywhere from $50 to $270 (for late filings.)
Role-based access control AP automation software can save all your invoices, approvals as well as payments digitally so your audits can be seamless and error-free.
Fraud prevention AP Automation software maintains detailed logs of almost every transaction, so even if there’s any attempt at suspicious action, the system can quickly catch that and prevent any unauthorized payments.
Time and Cost saving An average invoice with manual processing usually takes about 17 days as well as it can cost about $12.88. This shows that manual processing is not only costly but also takes too much time. On the other hand, AP Automation software can cut this time to 3.1 days and the cost to $2.78 per invoice.
Almost Error Free Anyone can make a mistake, with AP automation you can reduce errors like data entry, payment duplication and lost invoices by up to 80%.
Conclusion
As the numbers suggest, the gig economy offers an enormous opportunity for millions of workers, but with those opportunities come the challenges of navigating tax compliance. Looking ahead, as the gig economy continues to evolve, so will regulatory and tax compliance. AP Automation software that makes the process of the transaction as easy as cutting butter as well as making the compliance smoother, ultimately benefits both gig workers and the economy at large.
Zenwork Payments is the accounts payable automation software made to make the business-to-business payments the easiest way possible. It is built to solve the needs of the modern AP and finance teams and make the tax season headache free. With simplified and straightforward vendor onboarding to the ease of access, Zenwork Payments is the easiest way to pay your gig workers.
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