May 15, 2023Gig economy

Gig payments: How to set up pay for gig workers

Whether you’re building a labor marketplace or trying to offer faster payments to an established pool of gig workers, the way you set up payments will have a direct impact on the success of your business. Understanding the payment requirements for gig workers and having an effective payment system in place can help ensure that 1099 employees are paid accurately quickly, and securely.

With so many payment options available for gig companies, it can be challenging to know where to start. In this article, we’ll review the best kind of gig payments, how to set up payments for gig workers and the top trends in financial technology for gig and labor marketplaces.

What is a gig payment?

A gig payment is any transaction made between customer of a gig platform or marketplace and the platform’s contract gig workers. Typically, gig payments are made per service provided and are made via a third-party, such as an online or mobile payments processor (e.g. Everee, Stripe, etc.)

Why you need fast payments for gig workers

Quick and efficient payments are core to functional gig platform. Gig workers typically rely on multiple gigs or projects to make ends meet, and their income can fluctuate greatly from week to week or month to month. They may have irregular expenses or unexpected emergencies that require immediate funds. Fast gig payments address this income instability by providing workers with immediate access to their earnings, enabling them to meet their financial obligations in a timely manner.

Gig workers often prioritize flexibility and convenience in their work arrangements. Fast payments align with these preferences by offering a seamless and efficient payment process. Gig workers can avoid waiting for extended periods to receive their earnings, reducing financial stress and enhancing job satisfaction. Fast gig payments also help build trust and loyalty between platforms or employers and their workers.

How to set up gig payments

Implementing gig payments can be challenging and depends on multiple factors such as the size of the business, the complexity of its payment processes, and the available resources. To set up gig payments, you’ll need to evaluate and select the right payments playtorm or service provider that meets your business needs.

1. Choose a payments platform

Here are a few key considerations to keep in mind when selecting a payment processor:

– Payment processing fees: Processors typically charge per transaction plus an additional percentage of the total amount paid. It’s important to compare processors and find the one that offers the most competitive rates.

– Security: Ensure your payments processor is compliant with data security standards such as PCI DSS, HIPAA, etc. Also ask about possible fraud protection measures they offer.

– Payment methods: Different payment processors support different payment methods (e.g. payroll cards, earned wage access, etc.). Decide which payment methods need to be supported and select a provider accordingly.

– International payments: If you anticipate making international payments, make sure the processor supports them and understand any additional fees or taxes that may apply.

Once you’ve selected a payment processor, it’s important to set up a reliable system for tracking payments and ensuring accuracy. This should include processes for verifying gig worker information, reconciling payments, and keeping records of all transactions.

2. Define payment terms and structure

Payment terms refer to the specifics of how and when payments will be made, and the structure refers to the organization of these payment terms. When defining the payment terms and structure, it is important to communicate the following information to contractors or workers:

  • Payment amount: The exact amount paid for the work performed, including any bonuses or incentives.
  • Payment frequency: The frequency at which payments will be made, such as instant, daily, weekly.
  • Payment method: The method by which payments will be made, such as direct deposit or electronic payment platforms.
  • Payment deadline: The deadline for payment submissions and when the contractors can expect payment.

By taking the time to define payment terms and structure, businesses can ensure that gig workers are remunerated accurately and on time. This will go a long way in fostering strong relationships with the gig workforce.

3. Choose a payment method

Decide on a payment method that is secure, reliable, and accessible to all parties. A payment method that is not secure can result in delays, fraud, or other problems that can negatively impact the payment process. Peer-to-peer payment apps like Venmo, Cash App and Paypal are not suitable payment methods for gig workers as they aren’t intended for business transactions and do not offer the same protections as other payment solutions.

How are gig workers paid?

Gig workers are typically paid through direct deposit, ACH payments, debit cards, payroll cards, or earned wage access. Direct deposit is a common payment method and provides gig workers with fast and secure access to their wages without any additional fees. ACH payments use Automated Clearing House networks to electronically transfer funds directly into the contractor’s bank account. Debit cards are another popular payment method as they allow gig workers to access their earnings instantly. Payroll cards are pre-paid debit cards that can be used to pay gig workers, and earned wage access allows contractors to withdraw part of their wages before payday.

When choosing a payment method, it is crucial to consider the specific requirements of your business and contractors. Factors such as the size of your business, the complexity of your payment processes, and the resources available should all be considered. 

4. Comply with tax and legal requirements 

Failure to comply with state and federal tax and legal requirements can result in significant penalties, fines, and legal action. One way to ensure compliance is to consult with a tax professional who can offer guidance on local requirements. While this is not tax advice, some of the general requirements for gig payments include the following:

  • Reporting income: Independent contractors are considered self-employed and must report their income to the government. Businesses are responsible for providing contractors with a 1099 form to report their earnings.
  • Withholding taxes: Businesses must withhold federal income tax, Social Security, and Medicare taxes from the payments made to contractors.
  • Employee classification: It is important to classify workers as employees or independent contractors correctly. Misclassification can result in legal and financial consequences.
  • Labor laws: Businesses must comply with labor laws such as anti-discrimination laws when hiring and paying independent contractors.
  • State requirements: Businesses must comply with state-specific requirements such as state tax withholding and unemployment insurance taxes.

4. Maintain accurate records 

Keeping a clear and transparent record of all payments made, including the date, amount, and payment method can help to avoid disputes and make the payment process more efficient. Having accurate records can provide a clear and concise history of all payments made to contractors, including any disputes or issues that may have arisen. 

This information can be used to resolve any disputes quickly and effectively, saving time and resources for both parties. Accurate records can also be useful for tax purposes, as the information can be used to prepare accurate tax returns and to ensure compliance with tax and legal requirements.

Automated payment systems, such as payment platforms or digital payment tools, can help to maintain accurate records of all gig payments. These systems automatically record the date, amount, and payment method for each payment, eliminating the need for manual record-keeping.

Regardless of the system you use, regularly reviewing and updating all gig payment records can help ensure that they are accurate. This can help to avoid disputes and improve efficiency in the payment process.

Gig payment trends in 2023 and beyond

 As the gig economy continues to grow, businesses must adapt their payment strategies to keep up with the changing landscape. Mobile payments, e-wallets, and same-day ACH pay rails are all trending toward mass adoption in the years ahead. The trends to keep a watchful eye include:

Financial wellness

As workers navigate an inflationary economic environment, there’s a growing focus on financial inclusion. This means employers will invest in financial wellness services and offer tools like budgeting and credit score tracking.

Payroll cards

Prepaid payroll cards are becoming increasingly popular among gig workers as an alternative to traditional banking methods. Prepaid cards allow for faster payments, more control over when funds can be accessed, and provide additional benefits such as fraud protection.

Same-day ACH

Same-day ACH is a payment processing option that allows businesses to send and receive ACH payments on the same business day. Traditional ACH transactions usually take one to two business days to settle, but same-day ACH expedites this process, enabling funds to be transferred within the same day. To leverage same-day ACH for fast payments, you’ll need to work with a financial institution or a payment service provider that supports this feature. Verify that your chosen provider offers same-day ACH capabilities and ensure that their service aligns with your specific payment needs.

More awareness of compliance and regulation

The classification of gig workers remains a complex matter. As the gig workforce grows, it’s critical to be aware of federal, state, and local regulations (and their exemptions). Businesses should also remain conscious of data privacy regulations, tax laws, and other relevant compliance topics.

Fast payments for gig workers makes sense

Gig work has become a vital source of income for many individuals who may have limited access to traditional employment opportunities or face barriers to entry due to various reasons. Fast payments promote financial inclusion by ensuring that gig workers have prompt access to their earnings. This accessibility empowers gig workers and helps bridge the financial divide.

Delayed payments can create financial vulnerability for gig workers, especially those who rely on gig work as their primary source of income. Fast payments help mitigate this vulnerability by providing timely access to funds. By receiving their earnings quickly, gig workers can avoid falling into debt, late payment penalties, or resorting to high-interest loans to meet their immediate financial needs.

Pay your gig workers fast. Learn more about Everee’s contractor payments.