Given the current competitive climate within business, organizations are recognizing the value of quality outputs now, more than ever. Businesses are tapping into the use of specialized skills for specific projects, which gives rise to a growing contractor ecosystem. While this may be good news for quality production all around, accurate accounting of contractor expenses can be challenging to navigate. Yet it is crucial for financial success.
Keeping track of what you spend on freelancers and contractors forms an important part of project costing, liquidity management, and making smart financial decisions all around. We take a look at some of the key accounting considerations for businesses making use of contractors.
Understanding contractor vs. employee
Following the Covid-19 pandemic, our CPAs have seen a rise in the amount of businesses that make use of contractors. Distinguishing between contractors and employees forms an important part of understanding the accounting implications for each.
Contractors, often engaged for specific projects, are typically considered self-employed, and businesses are not responsible for certain benefits or taxes associated with traditional employees. On the other hand, employees are subject to a range of legal entitlements, including benefits and employer-paid taxes. The financial and tax implications of this distinction are significant; misclassification can lead to legal consequences and financial repercussions.
We take a look at the basics of accounting for contractors in NetSuite and share some key reasons why NetSuite’s functionality can help your business succeed.
Managing contractors in NetSuite
NetSuite streamlines the management of contractor-related finances, providing a centralized platform to track payments, expenses, and project-specific costs efficiently. This promotes organization and reduces the likelihood of errors.
To add your company’s contractor details to NetSuite, navigate to the vendor center and create a new vendor record specifically designated for contractors. Some of the key steps to follow will include entering essential details such as contact information, payment terms, and project-specific details.
Some of the benefits of managing contractors within NetSuite include:
- Financial accuracy: with NetSuite, you can track payments, expenses, and project-specific costs with precision.
- Decision-making insights: organized contractor records provide valuable insights into project profitability, resource allocation, and overall financial health.
- Compliance and transparency: NetSuite facilitates adherence to legal and tax regulations, mitigating the risk of misclassification or compliance issues.
Accounting for contractor payments
Managing contractor payments within NetSuite streamlines financial workflows, making it easier to report expenses. This highly aids the tax submission process. But not just that. There are a number of unpredictable expenses that might arise when dealing with contractors. If you’ve made use of contractors enough you’d know that things like payment advances and reimbursements are a regular occurrence. You’ll also know that keeping track of all of it can be a nightmare, but NetSuite also saves the day in this regard.
The basket of contractor-management functionality within NetSuite allows you to record ad hoc transactions and the software automatically keeps a record thereof. This enhances financial visibility within your business to empower you with project-specific financial data in real time to better facilitate contractor relationships while mitigating the risk of inaccurate reporting to the IRS.
Reporting and analysis
If transparency is your goal then NetSuite’s granular level of reporting not only enhances financial transparency but also offers comprehensive insights into contractor contributions across various projects.
NetSuite’s reporting capabilities empower businesses to gain valuable insights into their contractor engagements. Businesses can generate contractor-specific reports that give a detailed breakdown of project costs, timelines, and performance metrics.
NetSuite’s reporting tools thus serve as a vital asset, not just for accounting accuracy but for leveraging data-driven intelligence to optimize resource allocation and project outcomes.
Why it helps to partner with a NetSuite-expert CPA
A CPA with NetSuite expertise can navigate the intricacies of contractor management within the platform to ensure that your business optimizes its features for your needs.
At Fusion, our CPAs are NetSuite-certified. We understand the importance of an accurate software implementation to ensure the accuracy of its features. Our CPAs can provide strategic guidance on how to set up and manage contractors in NetSuite effectively. This includes advising on categorization, reporting, and analyzing contractor-related data for informed decision-making. Contact us for assistance today!
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.