6 Mistakes to Avoid When Hiring 1099 Contractors

The most common 1099 contractor hiring mistakes include unclear project scope, skipping proper vetting, poor communication, missing contracts, ignoring compliance requirements, and inadequate record-keeping. These mistakes can cost small businesses time, money, and legal headaches.

Working with 1099 contractors gives you access to specialized skills without full-time employee costs. According to the U.S. Government Accountability Office, 33% of businesses use independent contractors. But hiring well matters—the wrong approach turns what should save you time into a major headache.

How do you avoid hiring the wrong 1099 contractor?

Mistake #1: Starting work without a clear project scope

The problem: Hiring contractors without defining exactly what you need is like shopping without a list—you'll end up with the wrong things, and it might cost you a lot more than you were planning to spend, too.

How to fix it:

• Write down your end goal first

• Work backward to identify key milestones

• Set specific deliverables and deadlines

• Define success metrics upfront

Why this matters: Unclear expectations lead to scope creep, missed deadlines, and extra oversight that defeats the purpose of outsourcing.

Mistake #2: Skipping proper contractor vetting

The problem: Relying only on referrals without doing your own research can backfire.

How to properly vet contractors:

• Read reviews and check portfolios

• Verify references with past clients

• Conduct thorough interviews

• Test their communication style

• Ensure they fit your company culture

Red flags to watch for: No portfolio, can't provide references, poor communication during the hiring process, or unrealistic timelines.

Mistake #3: Poor communication and unclear expectations

The problem: Weak communication frameworks cause project delays, budget overruns, and frustration on both sides.

Communication best practices:

• Put all expectations in writing

• Schedule regular check-in meetings

• Send follow-up emails after calls

• Create open channels for questions

• Document decisions and changes

How often should you communicate? This depends on your project complexity. Daily check-ins for urgent projects, weekly for most work, and monthly for long-term initiatives.

What legal mistakes should you avoid with 1099 contractors?

Mistake #4: Working without proper contracts

The problem: No contract means no protection for you or your contractor. It also creates communication problems from day one.

Essential contract elements:

• Payment terms and schedule

• Project scope and deliverables

• Confidentiality agreements

• Dispute resolution process

• Termination conditions

You don't need to start from scratch. Use online templates or consult a legal professional to get started.

Tax Tip: Legal expenses related to your business—including attorney fees for drafting contractor agreements—could be tax-deductible as business expenses. Keep receipts and consult with a tax professional to understand what qualifies for your specific situation.

Mistake #5: Ignoring compliance requirements

The problem: Treating contractors like employees or missing tax requirements can create legal issues.

Key compliance steps:

• Collect W-9 forms before work begins

• Understand the $600 threshold for 1099-NEC forms

• Know the difference between contractors and employees

• Stay updated on Department of Labor classification rules

Classification reminder: Independent contractors control how they complete work, use their own tools, and often work for multiple clients.

Mistake #6: Not keeping proper records

The problem: Poor record-keeping creates problems at tax time and makes it hard to track contractor performance.

What records to maintain:

• Signed contracts and amendments

• Payment records and invoices

• Project deliverables and communications

• W-9 forms and tax documents

Storage tips: Digital copies are easier to organize and search. Keep backups of important documents.

How can Found help you manage 1099 contractors?

Managing contractors doesn't have to be complicated. Found's contractor management center handles the administrative work so you can focus on your business:

• Flexible payment options: Send 1099 payments via email or text, schedule payments in advance, or save as drafts until you're ready

• Easy W-9 collection: Request contractor W-9 forms anytime or require them before they can accept payment

• Repeat payment shortcuts: Duplicate previous payments with one click for ongoing contractor relationships

• Tax preparation made simple: Automatic 1099-NEC generation for contractors paid over $600

Found gives you more flexibility and control over contractor payments and tax compliance.

Frequently Asked Questions

When should I hire a 1099 contractor instead of an employee? 

Use contractors for specialized projects, seasonal work, or when you need specific expertise without long-term commitment.

How much should I pay 1099 contractors? 

Contractor rates are typically 25-50% higher than employee wages to account for taxes, benefits, and equipment costs.

Can I set a contractor's work schedule? 

No. Setting specific hours or requiring contractors to work from your location can trigger employee classification.

What happens if I misclassify a contractor as an employee? 

You may owe back taxes, penalties, and benefits. The Department of Labor and IRS actively investigate misclassification cases.

How do I handle contractor disputes? 

Your contract should outline dispute resolution steps. Many issues can be resolved through clear communication and documented agreements.

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