Contractors vs. Employees

One of the big questions in tax and payroll rules are what constitutes an “Independent Contractor” versus an “Employee.” The difference can mean a lot in terms of a company’s tax, payroll, and overhead costs:

  • Payroll taxes: State and federal withholding, unemployment tax, social security, Medicare;
  • Employment benefits: Pensions, PTO, unemployment insurance, worker comp, health insurance, etc.; and
  • Overhead costs: Training, equipment & supplies, office space, base pay.

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This difference is measured by the degree control and independence that the worker has in his or her work:

Control:

  • worker is not trained by payer
  • worker sets own schedule and routine
  • payer doesn’t establish work directions

Independence:

  • work is performed outside payer’s business location
  • worker performs services for other non-related businesses
  • worker has separate office/business location
  • worker incurs costs associated with work (uses own equipment and supplies; hires assistants)
  • worker has financial stake in service; can be let go at any time for any reason per contract

Link to IRS breakdown of control and independence

What Constitutes a Good A/P System

Processing:

  • Log all invoices
  • Enter invoices timely using
    • vendor ID to avoid remit address problems,stapler-1016310_640
    • invoice number to avoid double-payments, and
    • G/L account to prevent expense misclassification
    • “Invoice Amount Due,” not “Current Balance” to avoid double-payment and batch invoicing
  • Pay invoices immediately to avoid vendor payment status queries and for applying discounts
  • Use Purchase Orders to avoid over-payments, unauthorized purchases, budget over-runs

Record Management:

  • Maintain vendor W-9 files for accurate 1099-processing at year-end
  • File original invoices and check stubs together for easy reference

Policies:

  • Establish separation of data entry, payment processing, and payment approval
  • Never short pay invoices; ask vendor to re-invoice for any reason
  • Track worker comp, general liability insurance, sales tax
  • Use cost codes to track job-related expenses

What is Job Costing?

Job Costing for ProfessionalsJob costing is the process of accounting for all the costs for labor and parts associated with a job or project for invoicing, quoting, and budgeting purposes. For example, an auto-body shop would treat each car as a project that requires labor and materials to complete; the costs of labor and materials are grouped under each project. Likewise, a lawyer may treat each case as a job that incurs its own time and material costs. ‌In addition, specific jobs can themselves be grouped. A full-body paint job, hail-damage repair, and fender bender fixes are different types of jobs for a body shop. For a legal firm, divorce settlements, civil action suits, and bankruptcies can be distinct jobs that cases can me categorized under.

By grouping the costs under “jobs,” a business can assess job profitability, project budgeting, customer tracking, and labor and expense distribution.

Client Billing Methods

Below are some ways to do client billing:

Time & Expenses invoice – incorporates logged time and incidental costs (postage, mileage, etc) for specific cases into a single invoice for a customer

Flat Rate invoice – bill that has includes a single straight amount for specific services (such as bankruptcy, drawing up wills, business consulting/advice)

Billing Statements – a bill listing accumulated charges for a customer over an extended period of time; the invoice would include a statement detailing the charges over a course of time (usually since the last billing). This is the preferred method for attorneys

 

QuickBooks Online (QBO) vs. QuickBooks Desktop

Some advantages of both versions. Not a comprehensive or exhaustive list.

Pros (QBO):
QBO

  1. Accessibility – both business owners/controllers, bookkeepers, and accountants can access data at anytime and anywhere
  2. Support – QuickBooks Online technical support can help with many system-related issues more easily than Desktop: subscriptions come with technical support; technical support has instant access and viewing capability on your account; system upgrades and updates correct bugs routinely and efficiently; and some financial operations can be outsourced to their team such as payroll and still integrated into the account for reconciliation and reporting purposes
  3. Portability – Web-based applications can be accessed anywhere on any web-enabled platform; a business owner or bookkeeper can pay a vendor or run a report on the fly through any smartphone, tablet, or computer

 

Pros (QuickBooks Desktop):
QB Desktop

  1. Functionality – Being a self-contained desktop application, multi-tasking, reporting, and data storage functions is very easier; a user can have other windows and modules open and flip back between the two easily; web-based applications though have improved significantly, still are limited by web browsers, Internet connectivity, and cache/cookie controls
  2. Cost – Unlike QBO, the desktop version is not subscription based; there are monthly or yearly charges can add up to more than the one-time version of Desktop
  3. Security – Internet connection is usually limited to bank information downloads or sharing files or source documents; there’s no need for unlimited connection to the Internet, and hence no potential vulnerabilities to hacking, web snooping, or data breaches on the QuickBooks server side