5 Reasons Why You Shouldn't Venmo Your Contractors

banners-01It’s one thing to pay your friend back for a meal with Venmo, but it’s another thing entirely to pay the 1099 contractors that you employ with popular cash payment platforms like Venmo, Cash App, and PayPal.

Sure, payment apps can be convenient for some day-to-day transactions, but when it comes to your business, relying on payment apps to pay your
contractors is a slipshod way of doing business. And it’s not just because payments apps were originally designed for splitting a cab fare with friends; it’s because the people who work for you, even the zombies at your local haunted house this season, are professionals who are investing in your business with their time and services. To these professionals, how they are paid matters.

With the holidays right around the corner, there are more opportunities for contractors to find seasonal work. Because most of these opportunities are temporary, companies might be tempted to use payment apps to pay their contractors. However, we’ve come up with a list of five reasons why you shouldn’t Venmo your contractors.

5. Payment apps are messy.

Payment apps often blur the lines between personal and professional transactions, making it difficult to keep detailed, organized records of all your business payments. When tax season rolls around and business owners are required to complete 1099 forms, payment documentation becomes a nightmare. Furthermore, if you are ever audited, this documentation will matter; a court might determine that by using the same payment app for both personal and business transactions, you are demonstrating that there is no real distinction between your personal and business assets, which can result in asset forfeiture.


4. Contractors want to access their payments instantly.

Contractors want their payments instantly—or as soon as possible so they can take care of their own financial obligations in a timely manner. However, apps like Venmo will typically transfer funds into a bank account in 1-3 business days. Contractors who need to access the funds immediately will be charged an extra percentage fee by apps like Venmo—specifically 5% of the balance, with a $5 minimum.


3. Payment apps are not secure...

...and carry additional risks. Remember, payment apps cannot promise the same security that banks have. Payment app transactions are not backed by the FDIC. If payments are lost or interrupted, or if the payment app is hacked, you could lose everything in your account.

Also, bear in mind that payment apps, which might seem “free” will actually sell your account information to large, third-party firms. These firms will have access to your location data and contact information. If these firms are hacked, all of the data they have access to will be compromised.


2. Good grief, the fees, man!

To their credit, payment app companies tend to be transparent about the fees they charge, but that doesn’t make it hurt any less. While it is free to have a business account on Venmo, after 30 days, businesses are charged fees of 1.9% + $0.10 for every transaction. As many small business owners
take advantage of payments apps, the fees begin to add up fast, especially when those businesses are running on thin profit margins.


1. Not all contractors use payment apps.

Not all contractors accept payments through popular payment apps. They have their reasons. They might not have a smartphone, or maybe they don’t have a great data plan. Maybe it has something to do with the above-mentioned reasons: security, accessibility, and the indignity of having to pay a third party an additional fee to immediately access the wages they’ve earned.

Or maybe it’s just that cash payment apps are one more thing to keep track of, one more rickety app that promises to simplify one’s life at the expense of one’s time and near-constant attention. And you know what? No judgment here. We get it.

Receiving full payment for a job well done should always feel seamless, as well as secure—for companies and contractors alike. At Gig Wage, we believe that by improving the contractor experience through how payments are processed, companies will retain the best talent to give them an edge in a highly competitive marketplace.

Gig Wage is building the financial infrastructure for a 1099 economy by empowering businesses with dedicated technology, strategies, and processes to pay manage, and support their independent contractor workforce.  We offer instant, same-day, next-day, and 2-day fast and flexible payments so your contractors can not only get paid how they want, but when they want. Whether you pay 1 or 10,000 contractors, if you're ready to improve the way you pay your contractors, visit our website to get started.

Written by

Erin Lee