Independent Contractor Payroll: How to Pay 1099 Employees.
Hiring an independent contractor — sometimes referred to as a 1099 contractor, freelancer or consultant — can be a good value for your business.
Not only are independent contractors responsible for paying their own taxes, but this can also saving you money on insurance, benefits, and training costs.
There are two distinct ways to run independent contractor payroll:
With this, you’re responsible for filling out 1099’s, mailing them to each independent contractor at the year of the year, and keeping track of all payments to ensure accuracy.
SurePayroll Contractor Payroll Service
There are many benefits of relying on us for all things related to payroll for independent contractors:
- Easy access: No separate payroll necessary. We make it easy to run contractor payroll alongside your employees. Keep payroll data in one place!
- Online reports: Your up-to-date payroll reports are available online 24/7, making integration with accounting software or time-clock tools a breeze.
- Total control: We prepare 1099 forms for you, thus saving you the time and hassle of doing so yourself.
Small Businesses are Hiring More Independent Contractors
As small businesses look for ways to scale and do more with smaller staffs, many have turned their attention to independent contractors.
A recent SurePayroll survey found that 22 percent of small business owners are more inclined to hire an independent contractor than a full-time employee.
Who are these independent contractors? They could be anyone from a marketing specialist running a specific campaign, to a tech guru that comes in to work on your computer network. Or maybe you need help with a lengthy administrative or data entry task, and you have someone working on it off-site.
In many cases, small businesses are realizing they don’t have to hire a full-time person –and pay for the benefits and payroll taxes that come with that hire – to get certain things accomplished. While some independent contractors may charge a higher hourly rate, in the long run they allow business owners to save money.
Keep in mind, though, that independent contractor payroll comes with its own set of unique requirements and potential complications.
IRS Criteria for Independent Contractors
As a small business owner, you must be very careful that you’re meeting the Internal Revenue Service criteria when hiring an independent contractor. If you’re going to classify them as such and report them as a 1099 on your payroll taxes, you can’t treat them the same as a regular employee.
This means you don’t control their hours or require them to follow certain internal procedures. The IRS can also look at any number of factors that might suggest they’re an employee, such as whether or not they go through formal training, if they work on-site, and if their business expenses are paid. All these factors, among others, could indicate they’re an employee rather than an independent contractor.
Independent contractors are typically free to work for anyone they like; take on the risk of profit or loss for their work; and are paid by the job rather than by the hour.
It can be a blurry line, so you may choose to file a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, which allows the IRS to make the determination for you.
Independent Contractor Payroll Taxes
The most common contractor payroll form is the 1099-MISC, which you’re required to file if you pay a contractor more than $600 in a year. This can be a chore for the small business owner, as it means manually sending each contractor you hire their respective 1099.
Rather than manage contractor payroll in-house, consider the benefits of hiring a professional to take on this task. With our 1099 payroll service, you’ll never again have to concern yourself with making a costly mistake. And best yet, it’ll save you time!