Payroll and people
Paying contractors
How should you pay contractors and keep the paperwork straight for tax time?
Six short steps. No email or account.
- Who needs it
- Any business using subcontractors or freelancers, which is most home services and most agencies.
- When it matters
- Before the first contractor payment, so details are collected while they still want to be paid.
- Compare first
- W-9 collection at onboarding
- Matters most when
- growing, mature
Is this the right tool for you?
Paying freelancers and subcontractors looks simple until year end, when you need their correct tax details to file information returns and they need their forms. Chasing missing tax forms in January, with payments spread across checks, transfers and apps, is where most small businesses get caught.
Signs you need it now
- You do not have a signed tax form on file for every contractor you paid this year.
- Contractor payments are spread across checks, bank transfers and payment apps.
- Year-end filing means going back through bank statements to total what each person was paid.
- You are not sure whether some of the people you pay should really be employees.
When another area fits better
- The people you pay work set hours under your direction and are really employees. Read the payroll guide
- You mainly need to pay supplier invoices, not individual contractors. Read the paying bills guide
Recognise two or more of these? Sort out paying contractors next.
Tell us how your business runs and get a plan that puts paying contractors in order with everything else: what to set up first, your must-haves and what to compare.
What matters at your size
Working alone
If you pay a handful of freelancers, collect a tax form before the first payment and pay through one traceable method. Your accounting software may be enough.
A small team
A tool that collects tax details at onboarding, pays by direct deposit and prepares year-end forms saves real time once you have more than a few regulars.
Several teams or locations
Contractor onboarding with agreements, insurance certificates and tax forms in one place, approval before payment, and costs tied to jobs or projects.
How the way you work changes the choice
- Trades using subcontractors
- Beyond tax forms you usually need current insurance certificates and sometimes license details. Look for a place to store them with expiry reminders.
- Agencies and consultancies using freelancers
- Freelancers invoice for project work. Payments linked to their invoices and to the client project make margins visible.
- International contractors
- Different tax forms and payment methods apply. Confirm the tool supports the countries you pay into, and ask your accountant what you need on file.
What to compare
W-9 collection at onboarding
Collecting details before the first payment is the entire point.
1099 filing included
Some tools prepare forms; some file them with the IRS. Confirm which.
Cost per contractor
Per-head pricing adds up with a large casual pool.
Cost and setup effort
- Some payroll and accounting tools include contractor payments; standalone tools usually charge per contractor paid each month. Compare against what you already pay for.
- Setup is light: invite each contractor to enter their own tax and bank details. The hard part is getting every existing contractor to do it before year end.
Trade-offs to weigh
- Inside payroll or separate
- Paying contractors through your payroll provider keeps all labor cost in one place. A separate tool can be simpler if you have no employees.
- Convenience or classification
- A tool makes paying contractors easy but does not decide who counts as one. Worker classification rules differ between federal and state law; check your state or ask a professional.
When to sort it out
Before the first contractor payment, so details are collected while they still want to be paid.
Your next step
Answer six short questions about how your business runs. You get an operating plan: where paying contractors fits among your priorities, the must-haves to hold every option to, and what to compare when you choose.
Where this comes first
Trades and businesses that usually sort this out early.
Often decided alongside
Other parts of payroll and people.