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A guide to paying independent contractors

Nathaniel BrewsterMay 10, 2022

Independent contractors, whether they be sole proprietors, individuals, or companies, are an asset for businesses that require one-off work or have the periodic need to supplement an internal team. Establishing a process to onboard and pay contractors can help you accommodate any type of work, at any scale, exactly when you need it.

The contractor challenge 

Contractors are vital assets to companies that need to scale resources quickly. But getting one hired and onboarded is usually anything but speedy. They frequently face long and complex contractual negotiations to get “in the system.” Even after the work is complete, many organizations pay on net-90 terms, meaning that the contractor does not get compensated for up to 90 days following the completion of their work. 

To put it bluntly: Contracting is fraught with risk. And risk does not bring out the best in people. Neither the contractor nor the employer benefits from the drawn-out, convoluted hiring process that has become, unfortunately, the status quo. 

From an employer's perspective, contractor management often results in manual work like customizing contracts, routing internal approvals, logging hours, and running individualized payroll. Everything’s one-off—it’s fundamentally inefficient. 

Nobody becomes a contractor because they want to manage a business 

Contractors have a passion for their craft—not a passion (in most cases) for the mechanics of running an LLC. Even if employers understand this dynamic, they usually do not have the infrastructure to improve the flow of business (more on how to solve that later). Contractors are often confronted with late payments, delayed onboarding, and general disorganization. The advice here is simple: If employers want the most robust bench of on-call talent, they must do everything they can to make life easy for their contractors. 

Nick Wiesner, VP of Brand at Rippling, puts it this way, “Contractors are our competitive edge as a marketing team. I do everything I can to make their choice to work for us a ‘no-brainer.’” He continues, “They’re on the same pay cycle as full-time employees and I can get them ‘in the system’ in less than a business day. Why wouldn’t they work for us?”

Immediate and fair compensation is vital to establishing a lasting working relationship with top talent, Nick adds. It’s imperative to get contractors onboarded quickly and smoothly, and establish trust through that first bank transaction. “If that doesn’t happen, they’ll bail.” 

How to pay independent contractors in 4 steps

Step 1: Choose your payroll software 

The era of manual payments by direct wire transfer or cutting a business check is over. Instead, look for payroll software that unites all your bookkeeping and regulatory requirements with the ability to manage ancillary data like devices and app permissions. 

While not every contractor may require a loaned computer or access to internal communication platforms, these functions are much easier to have and not use than integrate after the fact—make your purchasing decision based on equal parts capability and flexibility. 

Step 2: Get your W-9 forms

The IRS requires an independent contractor to provide a W-9 form; the form includes the contractor’s contact information and taxpayer identification number. Contractors must provide a W-9 before performing work. Most payroll systems can request these forms. 

Step 3: Get your contractors set up in your payroll system

This is the easy part. Once you have a contractor’s W-9 form, you should have what you need to create a user in your payroll system. Most systems like Rippling will have the ability to add the contractor’s rate and contract details and offer them a time-tracking platform. At this point, you should also set up user permissions for internal applications like Slack, Outlook, Zendesk, or whatever else your teams rely on to collaborate. 

How Rippling can help with paying contractors

Rippling unites all facets of contractor management, giving you the ability to oversee your entire workforce in one place.

See the solution

Step 4: Prepare and send 1099-NEC forms

Beginning with the 2020 tax year, businesses that hire independent contractors must send those contractors a 1099-NEC form at the end of the year. Contractors must receive the form by January 31 at the latest. 

According to the IRS, recipients of the form should meet the following four conditions:

  • The payment is made to someone who is not your employee
  • The payment is made for services in the course of your trade or business
  • The payment is made to an individual, partnership, estate, or corporation
  • The payment total is at least $600 for the year

Rippling automatically generates and distributes 1099 tax forms to your contractors. And all past 1099 forms are stored within your Rippling account. 

Rippling houses your contractor data alongside your full-time employees' HR and IT data. Since your entire workforce is in a single platform, taxes and other reporting are one-click simple. Such integration also means that contractors get paid whenever you run payroll (for the contractors out there—you never have to wait on payments with clients that use Rippling.) Get the details after the jump.