Following the rules and regulations regarding payroll for contract employees (or 1099 employees) can be a mysterious undertaking for a business owner. It is important to understand who is a contract employee and what steps to take for payroll. Doing this could save you money and decrease risk and loss in the future.
Who Is a Contract Employee?
A contract employee is a person who has complete autonomous control over the work done as a self-employed person. Many people can fall under this title, including roofers, gardeners, nannies, designers, accountants and lawyers.
How Do You Set Up Payroll For Independent Contractors?
Follow these steps for payroll setup:
- Create an agreeable written contract with your new independent staff detailing work and payment schedule.
- Have your employee fill out a W-9. This form determines if the person can work in the United States and provides important employee information.
- If the contractor earns more than $600, you must issue a 1099-MISC. This form records the contractor’s earnings, similar to a W-2, but it does not provide tax or insurance information.
What About Taxes and Insurance?
Independent contract employees are responsible for paying their own taxes and insurance, including business tax and workers’ compensation, relieving the business owner of these expenses.
Understanding the subtleties of working with contract employees can lighten your financial load as well as mitigate your risk as a business owner. Following these quick and easy steps demystifies the process of payroll for contract employees.