How to Manage Payroll for Contractors for 2023

More businesses than ever before hire different types of classified workers and must understand how to manage payroll for contractors for the 2023 tax season. Employers need to accurately classify each of their business’s workers. Properly pay your employees and your independent contractors by check or using direct deposit. The method may vary between employers, but every worker should receive their compensation on time and in full. Keep in mind that how you withhold their earnings differs between employees and independent contractors. Start out by looking for payroll software that supports employee and non-employee compensation throughout the entire year.

Advanced Micro Solutions offers a base W-2/1099 Forms Filer program with six optional add-on modules. One of the modules is our AMS Payroll software. Consider using our software in order to transfer your business’s data to state and federal quarterly unemployment forms, along with the year-end W-2 and 1099 forms.


Key Features to Look For in Payroll for Contractors

Smaller businesses oftentimes benefit from onboarding contractors to do specific assignments. Confirm that your new hires are independent contractors and then consider which payroll tools you need to support their compensation packages.

Automation – Save time when your contractor payroll software automatically calculates your business’s federal, state, and local payroll taxes. You or your payroll department needs to do multiple tasks on a given day. Do not spend all of your time running payroll and entering the same information multiple times.

Flexible Payment Options – Look for a payroll program with more than one compensation method. You may decide that you wish to use checks only as you run payroll for contractors. Consider investing in a system that offers direct deposit capabilities as well. You should not need to purchase more than one software for different workers.

Integration – Sometimes you will use software from different vendors with the same end goal in mind. Make sure that your products integrate with one another. Accounting and payroll tools can exist within the same system. A unified accounting suite of tools will generally let your business process “live” or after-the-fact payroll.

Importing and Exporting Capabilities – Transferring data should not create more work for you or your payroll department. Confirm the sources from which you can import and export company data. Make sure that if you use a system like QuickBooks or Excel that these integrate with your payroll for contractors program.


Pros and Cons of Hiring Independent Contractors

Hiring specific worker classifications comes with distinct benefits and disadvantages. Identify your company’s needs and prioritize them as you consider which type of worker makes more sense for you to hire.



Your business may save money. Employers must contribute more to their hired employees in the way of compensation. A business will not pay independent contractors employer-provided benefits or for any used office space and equipment. You do not contribute to any contractors’ Social Security and Medicare taxes.

You may encounter fewer lawsuits. Independent contractors do not have the right to receive at least the minimum wage or any qualified overtime compensation with payroll for contractors. An employee can form a union or take time off for family reasons.



You may face audits from the government. The Internal Revenue Service may check to see whether you properly classified your workers as independent contractors versus employees. It increases the difficulty of workers underreporting what they earned if you only hire employees. Prepare yourself ahead of time with reliable accounting and payroll software so that you have sufficient paper trails.

Your workers have greater autonomy. You cannot closely supervise independent contractors like you would monitor an employee. The IRS will likely step in if you try to control too much of an independent contractor’s work and make them appear as an employee.


Why AMS is the Best Payroll for Contractors

AMS Payroll has easy payer and employee setup with support in all 50 states, plus the District of Columbia and Puerto Rico. Our system manages up to 1,999 payers and 9,999 employees per payer. Process your employee direct deposit payroll information or print any MICR checks individually or by a date range. We support more than 30 different check types.

Users can import data from QuickBooks, PeachTree, Excel, and Tab Delimited Text files. Export your business’s data to a Tab‑Delimited Text File or QuickBooks General Journal depending on your personal preference. Use our View command tool to review the different state and federal tax liabilities whenever you need them. Download our free 1099-etc Demo software today and explore our fully functional system with your company’s data for tax year 2023.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.