6 Mistakes to Avoid When Hiring 1099 Contractors

Whether you are running your own business or managing a project, working with 1099 contractors offers access to specialized talents and knowledge without the expense of hiring full-time workers. However, it’s crucial to hire well, because making some of the common mistakes can turn hiring 1099 contractors can cost you time and money.

According to the U.S. Government Accountability Office, a 2020 census showed that 33% of businesses use independent contractors. This should come as no surprise because working with 1099 contractors has a lot of advantages. Better expense control, diverse expertise, and scalable staffing options are just a few. Yet, effective management of these connections greatly impacts their performance. Let’s look at some of the most common errors individuals make while dealing with 1099 contractors and how to prevent them.

Mistake #1: Not Knowing What You Need

Just like going to a grocery store without a list leaves you with unnecessary items, hiring contractors without a clear understanding of your needs won't lead to success. The foundation of any fruitful partnership with a 1099 contractor lies in establishing precise goals and project outlines. Uncertainty or ambiguity in these parameters can jeopardize project success or demand excessive oversight on your part. Fixing work from a poorly-defined project eats into your time, defeating the purpose of outsourcing it.

It's important to outline clearly defined goals, deliverables, and timelines before you bring a contractor on board. Start by identifying your end goal and work backward. Next, define all the milestones you expect to see leading up to that goal. Think about what you want your contractor to deliver and when. You may have to do some preliminary research on your project to figure out what a reasonable timeline might look like. 

Mistake #2: Insufficient Vetting of Your 1099 Contractor

While personal referrals can be a great starting point when searching for a contractor, don't sacrifice your own due diligence for someone else's good word. How you hire 1099 contractors makes a big difference in the quality of your working relationships. Read reviews, review portfolios, verify references, and conduct thorough interviews, just as you would for any other position.

Remember, a contractor's skill set is just one aspect to consider. It's equally important to find someone who aligns with your project and company culture. If a contractor isn't meeting your expectations, evaluate their work and reflect on your own involvement to identify any mistakes contributing to the unsatisfactory experience.

Mistake #3: Poor Communication With Your 1099 Contractor

Failure to establish clear expectations and maintain open communication can be disastrous for any relationship, including with 1099 contractors. This risk reinforces the value of a well-defined scope of work from the outset. To ensure you're hiring a contractor who can provide what you want, you must be aware of your needs and successfully communicate them.

Here are some best practices to adopt:

• Put critical information, expectations, and deliverables in writing.

• Schedule recurring check-in meetings to provide feedback, address issues, and ensure the project is on track.

• Send follow-up emails summarizing key points and decisions after any in-person or phone meetings.

• Encourage open dialogue, making it clear the contractor can come to you if they have any questions.

Even if you've already started working with a 1099 contractor without a solid written communication framework, initiate one by summarizing the tasks completed and outlining the remaining project scope. Be mindful of the key differences between 1099 contractors and employees, and use that understanding to inform your communication approach and expectations.

Consider how frequently you communicate with the contractor to receive updates and offer input. The secret to a productive working partnership is open, frequent communication. Think about what makes sense for your project in terms of daily, weekly, or monthly check-ins. This is especially important if you don't see your contractor throughout the course of your day. Document your agreements in writing, even if the initial discussions took place over the phone or in person, as it solidifies expectations.

Mistake #4: Neglecting Contracts With Your 1099 Contractor

Remember to keep the "contract" in "contractor." Not only is the lack of a contract the beginning of poor communication, but it also leaves you vulnerable. Contracts are a fundamental tool that protects you and the contractor, outlining the terms of your working relationship and what's expected from both parties. 

Your contract should include essential elements such as payment terms, confidentiality agreements, dispute resolution mechanisms, and more. Don't worry about creating a contract from scratch—numerous online resources offer templates, or you can consult a legal professional for assistance.

Mistake #5: Treating Your 1099 Contractor Like an Employee

Independent contractors are different from employees. Understand and fulfill your compliance duties, including proper classification, obtaining W-9 forms before work begins, and remembering the $600 threshold for 1099-NEC form issuance.

Knowing and upholding these commitments establishes boundaries between you and the contractor and guarantees that you are acting legally. The Department of Labor’s upcoming independent contractor classification ruling may impact what you need to do for your contractors. The American Bar Association has guidelines on contracting that provide a detailed analysis of the legal aspects you should know about correctly classifying your workers.

Mistake #6: Not Keeping Records of Your 1099 Contractor

While treating 1099 contractors like employees is a mistake, keeping records is essential, just as you would with an employee. If you prefer traditional paper-based records, file duplicates of contracts, bills, and other relevant paperwork for easy access when needed. Digital copies are more convenient to save and organize.

Maintaining precise records not only keeps you organized but also prepares you for tax time. Although a 1099 contractor's self employed taxes aren't your responsibility, it's good practice to keep records in case your contractor comes to you with discrepancies. If contractors require information from you for their self-employment tax forms, you'll be ready.

Simplify contractor management with Found

Hiring quality 1099 contractors can seem daunting, filled with pitfalls and complexities. But it doesn't have to be this way. You can turn this potential headache into a smooth-sailing process with the right tools and knowledge.

Found makes hiring 1099 contractors seamless from start to finish. Our contractor management center allows you to easily collect W-9 forms, pay your team quickly, and stay on top of taxes at the end of the year—all for free. With Found at your side, you can navigate the world of 1099 contracting with confidence. Sign up for free.

The information on this website is not intended to provide, and should not be relied on, for tax advice.