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.
This difference is measured by the degree control and independence that the worker has in his or her work:
- worker is not trained by payer
- worker sets own schedule and routine
- payer doesn’t establish work directions
- 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
Job 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.
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
Some advantages of both versions. Not a comprehensive or exhaustive list.
- Accessibility – both business owners/controllers, bookkeepers, and accountants can access data at anytime and anywhere
- 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
- 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):
- 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
- 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
- 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