If you’ve ever found yourself lacking the expertise or resources to complete a project, outsourcing to an independent contractor can be a lifesaver. They’re an ideal solution to avoid hiring full-time employees for projects with a limited scope or duration.
However, the financial management of independent contractors presents challenges. Not only does hiring an independent contractor have different tax implications, but payments and contractor expense approvals can become tricky.
Thankfully, with NetSuite, it’s possible to easily set up expense approvals to streamline the finances behind these relationships.
Setting Up Approval Workflows
An effective way to manage contractor expense approvals is to set up dedicated workflows in NetSuite. This allows you to easily manage cash flow, pay your contractors on time, and ensure compliance with various regulations.
With the NetSuite Workflow Manager, you can build custom approval flows to quickly authorize your contractor’s expenses and keep things moving. These kinds of workflows are easy to automate and fine-tune, ensuring accuracy and efficiency. For instance, your team can set up a workflow that requires action from specific employees, with buttons on forms at certain stages that send emails based on actions taken.
As an example, when you develop an approval workflow in NetSuite, consider including a few simple steps during the different stages:
- Initiation. This should feature dedicated field values required for approval workflow, with restricted editing. For example, a ‘submit for approval’ button.
- Purchasing Approval. Here, you can include buttons to accept or reject an expense. It’s best to assign these buttons to the person who handles your procurement and expenses.
- Rejection. If an expense is rejected, an email will automatically be sent to the person who requested approval, and mark the expense as ‘rejected’. The notes field of this button can be used for explanations or further details.
- Approval. If approved, an email notification will confirm this, and the relevant field will be marked as ‘approved’.
It’s important to note that you’ll need to include any exception criteria in the invoice validation stage. This could include any expenses that are tax-exempt.
Best practices for efficient approvals
To efficiently manage independent contractor expense approvals, consider creating an expense policy. It should clearly define what kind of contractor expenses are permissible, and include details of any costs which are non-policy-compliant.
Your policy could include the following:
- A clear definition of the contractors the policy applies to.
- A list of valid expenses.
- Any limitations.
- The suggested expense report format.
- Details to be included in expense claims.
- The payment method.
- Any deadlines associated with the payment.
- Details of the person responsible for expense approval.
Once you have a policy in place, you can follow other best practices:
Use and understand automated expense management software
NetSuite’s expense management software allows you to track expenses in real-time and set up automated approval processes. However, in order to make the most of this software, users must be familiar with the platform and its various functions.
This includes automating your expense audits. By auditing expenses, your company can avoid common issues like duplicate invoices or fraudulent transactions.
Pay your contractors on time
Because most contractors are self-employed, timely payments ensure that they meet tax obligations, avoid frustration, and offer you dedicated service. Late payments can tarnish your company’s reputation, and lead to project delays.
Digital Receipt Management
Depending on the nature of the project for which you’ve hired an independent contractor, the payment structures may differ. A once-off project might come with a single payment and ad hoc expenses, whereas an ongoing agreement could include several weekly or monthly payments in addition to covering associated expenses.
Naturally, this means that you could be receiving a lot of invoices or expense receipts. A solution is to digitize your expense tracking. Integrating digital receipt solutions with NetSuite can streamline payment processes for optimal efficiency. For example, you could automate invoice matching and verification before payments are sent for approval. There are several other benefits to automation and digitization.
The benefits of digitizing expense tracking
Having digital receipts to manage business expense reports offers you:
- Reduced errors and boosted productivity: Because receipts are captured and stored digitally, in real-time, they can easily be accessed, tracked, and matched to relevant expenses. This allows for precise bookkeeping and helps your finance team keep precise records.
- Improved record-keeping and data organization: NetSuite stores financial information stored securely via the cloud, with the added benefit of improved data security.
- Better data analysis: Automatically categorizing your receipts can help you to identify spending patterns to make data-driven decisions.
One of the most important ways that digitization can benefit your business is by streamlining audit trails for regulatory compliance.
Audit Trails and Compliance
An audit trail offers a clear and organized view of every business transaction, for better decision-making and regulatory compliance.
For this reason, your business must maintain clear records of all financial processes. With regard to independent contractor expense approvals, your audit trail should include the expense approval policy mentioned earlier. After all, clear guidelines on the approval process can improve your company’s financial control and prevent mismanagement.
Independent contractor compliance
The IRS and Department of Labor have clear guidelines and policies outlining the employment of independent contractors. These include:
- Definitions of contractors based on their employment conditions and financial management (including whether or not they provide tools or are reimbursed by a company for expenses).
- Stipulations about how companies classify independent contractors on payroll.
- Various tax obligations.
However, some states have different regulations for independent contractors, which can complicate compliance.
With NetSuite, your business has access to clear financial records to ensure it’s always compliant.
How NetSuite ensures transparency in expense approvals
NetSuite can easily track and record your contractor expenses. This includes information like the date, purpose, and amount, as well as supporting documentation like receipts and invoices. When it comes to contractor expense approvals, you can choose between single-level, multi-level, or parallel approaches to approval.
- Single-level approval allows one approver to review and authorize expenses.
- Multi-level approval is a hierarchical process that lets multiple approvers review and approve expenses.
- Parallel approval allows multiple people to approve an expense at the same time, to save time and improve efficiency.
Together with the ability to create custom approval process workflows, your contractor expenses can be recorded and paid with complete transparency.
The software can also assist with compliance. For example, when loading a contractor to your payroll, you can choose their employment status and defined working hours, to prevent misclassification. Moreover, NetSuite payroll can generate 1099-MISC forms for any contractors.
Tips for Faster Expense Processing
Contractor expense approvals and expense processing can be tedious. Factors like a high volume of reports, missing expense evidence, lack of an approval workflow, or policy violations can lead to further delays and frustration.
To speed up processing, it’s crucial to streamline communication with contractors. Ensure that your contractors are aware of your approval procedures and payment times. Also communicate any problems with expenses as soon as they arise, to avoid project delays down the line.
We also recommend setting clear guidelines for expense submissions. Make sure that your expense policy removes any aspects which could delay processing, through automation. Moreover, your team should be informed of all processes listed in your policy.
Finally, ensure that you are using the right software. With NetSuite, your expense reporting can include a number of features to speed up processing, such as audit trails, email reminders for approval, and reporting that assists with compliance.
For assistance with NetSuite approval workflows and to ensure you meet independent contractor compliance regulations, schedule a Discovery Call with one of our NetSuite CPAs.
The information presented in this blog article is provided for informational purposes only. The information does not constitute legal, accounting, tax advice, or other professional services. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. Use the information at your own risk. We disclaim all liability for any actions taken or not taken based on the contents of this blog. The use or interpretation of this information is solely at your discretion. For full guidance, consult with qualified professionals in the relevant fields.
