Small business owners should, first and foremost, explore the best payroll software for 1099 employees. Finding what works best for your business early on will help to strengthen future financial decisions. However, paying 1099 independent contractors differs from standard W-2 employees. Make sure that you know the outlined steps below for paying 1099 independent contractors. Knowing your obligations can prevent you from making costly errors.
Identify Your 1099 Workers
Employers must correctly identify which workers are independent contractors. An independent contractor is a self-employed worker. You will often hire these workers for a short-term project. Additionally, when you hire these workers, you typically will not work with them for an extended period of time. You do not use payroll software for 1099 employees to provide workers with any benefits like paid sick leave, health insurance, or paid time-off.
Determine the Pay
All independent contractor overseers should determine the best way to pay their workers once they know who is working for them. Businesses generally determine a rate upfront with any of their contractors. They may pay hourly or on a per-project basis. If your company wishes to keep on a contractor, you can put them on a retainer. That means you will pay them a flat fee.
Determine with each contractor how often you will pay them. Some businesses ask contractors to invoice them monthly or quarterly. However, some contractors can send weekly or even daily invoices if both parties agree upon those methods.
When you use your payroll software for 1099 employees, paying your workers more frequently can be made easier. If you pay them hourly, it may make more sense to ask for daily or weekly invoices. It is easier to manage your cash flow when you pay workers with greater frequency. It may help you see when your business’s funds are tight. That knowledge can also allow you to reduce contractor hours at the end of a specific month.
Ask for Completed W-9 Forms
Make sure to collect completed W-9 forms from all of your independent contractors before they get to work. The Form W-9 requires the contractor’s name, their social security number, as well as some additional information. The form is an acknowledgement between both parties that the independent contractor is a non-employee. It acknowledges that the contractor is not subject to withholding any taxes. Make sure to keep all of your W-9 forms for a minimum of three years.
Why Use Advanced Micro Solutions?
Our payroll software works as an add-on module to our W-2/1099 Forms Filer. Your company can enter payroll, non-employee compensation, and more 1099 information with a check. You can enter the aforementioned information throughout the year as well. An additional benefit of utilizing our payroll software for 1099 employees is it supports “live” and after-the-fact payroll. Businesses can transfer 1099 data to the state or federal quarterly unemployment forms. You can also do that in conjunction with sending your end-of-year 1099 and W-2 forms.