What Is the Best Way to Pay Independent Contractors?

Independent contracts make up around 7% of employment in the US. This many self-employed and gig workers means lots of opportunities—for workers and those hiring them.

Whether hiring for yourself or your business, are you sure you know the best way to pay independent contractors? Have you considered details like worker status rules, tax forms, and record-keeping?

It may be tempting to wing it, but you’re better off learning how to do it right.

Use a Paystub Maker

It’s easy to make mistakes, so you should look for help in maintaining accuracy. For that reason, it’s best to use a pay stub maker for self-employed individuals.

This type of service can protect you from:

  • Liability, including worker reclassification and back taxes
  • Clerical errors, which can be critical
  • Documentation gaps
  • Wasting time

1099 Contractor Forms

You should become intimately familiar with two tax forms: the 1099-NEC and the W-9. The IRS requires these forms, so you should start getting cozy with them now. To simplify the matter further, you can easily connect with a live certified public accountant or an IRS-qualified enrolled agent on-demand from your Philadelphia home (or anywhere else in the United States you might call home) online, one-way video.

It’s not uncommon to procrastinate when it comes to paperwork. Just keep in mind that it becomes more difficult and stressful the longer you wait.

Key points:

  • The W-9 is for the contractor to fill out
  • The 1099-NEC is for you to fill out when you hire a contractor
  • The bureaucracy can be tedious, but at least you can file your forms online

Payment Terms

There’s no one-size-fits-all strategy for crafting a good independent contractor agreement. You and your contractor may have different requirements, so be sure you understand the most common options.

Per Hour

This is pretty straight-forward: you pay your contract based on the hours of work done. Be sure to review estimates and overage limits before work begins.

Per Project

In this type of arrangement, you pay for the unit of work to be done. This helps when you want to avoid hourly overages—through contractors will usually include expected overages in their project fees.

Contractor vs Employee: Know the Difference

This is a big one. Hiring a contractor can seem like a good option when hiring an employee doesn’t fit your needs. But it’s crucial to keep one thing in mind: just because you think you’re hiring a contractor doesn’t mean the IRS will agree.

It’s your responsibility to know how the IRS looks at the difference. If they determine your contractor is more like an employee, they can reclassify the worker as such. That means penalties and other issues for you.

Some key questions include:

  • Do you determine when the work is done?
  • Do you determine how the work is done?
  • Do you provide equipment?
  • Does the contractor send you invoices?

Don’t Guess About the Best Way to Pay Independent Contractors

Whether you’re hiring contractors for personal work or for your business, there are important requirements for both parties. Knowing the best way to pay independent contractors requires a little planning and a little education. By reading this article, you’re off to a good start.

Want to learn some other helpful tips for your business? Make sure you take a look at the rest of our blog!

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I am Lara Slowik, I have done my bachelor’s in English literature, and further on I did my master’s in Medicine. My most preferred genre of writing is health and biotech, Entertainment. I have been writing from the past 6 years about articles, web content, and blogs. In my career and education, I like to play along with work. I have also been a teacher in the past for 2 years. I use to teach business and technical writing in a very famous university. However, most recently! i am working as an instructor, designer, and training writer. I enjoy socializing a lot. I am a very big extrovert when it comes to nature. A part from all this I enjoy exploring the world and traveling makes me happy.