Payroll is a fundamental business process. For you as a freelancer, it's how your client manages and disburses your compensation.
What is Payroll?
Payroll is the system a company uses to pay its employees for work performed. It involves calculating wages, withholding taxes, and distributing payments. As a freelancer, you are typically not on a client's payroll. Instead, you invoice them as an independent contractor.
Why is this important?
Understanding payroll helps you grasp your client's internal payment procedures. This knowledge clarifies payment timelines and required documentation, like W-9 forms. It also highlights the key legal distinction between an employee and an independent contractor like you.
How does it work?
When you're hired, the client's finance team adds you as a vendor. You submit an invoice, they approve it, and their accounts payable processes it. You receive payment via bank transfer, check, or digital platforms, followed by a Form 1099-NEC for tax purposes if you earn over $600.
Pros and cons
The main advantage is predictable, scheduled payments from established clients. Potential downsides include slower payment cycles dictated by the client's schedule and more complex onboarding paperwork compared to direct payments via platforms.
Conclusion
While you manage your own finances, knowing how client payroll works ensures professional interactions. It helps you set clear payment terms and understand the documentation flow. This knowledge is a small but crucial part of running a smooth freelance business.
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