5 Features You'll Want in Your 1099 Payroll Software

Here’s a number you need to know: 1099. That’s because the gig economy and the number of 1099 contractors are growing as more people embrace the freedom of self-employment. In fact, Statista data reveals that 60 million Americans freelanced in 2022, and this number will continue to grow.

If you're a small business owner or solopreneur, you're part of this growing trend — which also means you might be managing 1099 contractors. And while 1099 contractors can be immensely helpful in shouldering some of your work, keeping up with timely payments and accurate paperwork can be its own challenge. Enter 1099 payroll software: It’s like having an extra pair of hands to handle the administrative side of your business. 

What is 1099 Payroll Software?

In a nutshell, 1099 payroll software is what it sounds like: Software designed to handle payments for your independent contractors or freelancers. It automates payments, but perhaps more importantly, it also ensures that you’re tracking those payments correctly and end of year 1099-NEC forms are generated accurately. That accuracy helps keep your business compliant with tax regulations—and helps you avoid major headaches. 

Remember that while traditional payroll systems help employers manage tax withholdings via W-2 forms, the 1099 process is more hands-off, with contractors handling their own tax withholdings and self-employment taxes. 

What are the Benefits of 1099 Payroll Software?

Sure, you could become an expert in 1099 paperwork, W-9 forms, and spend your days manually ensuring you make timely payments to your team. But is that the best use of your limited time? 1099 payroll software handles that burden for you so you can focus on growing your business and spending time doing the things you love. Here are three ways the right payroll software can transform your workflow:

• It simplifies a complex process: Hiring and managing a contractor can be an involved, multi-step affair. From onboarding contractors, collecting W-9 forms, and ensuring contractors are paid the right amount on time, there’s a lot to get done. The good news is that 1099 payroll software can simplify and automate much of it, making your workflow easier and faster. 

• It helps you stay on top of paperwork: Tax time already comes with an overwhelming amount of paperwork for a small business owner—why add more to that stack? For example, let’s say you hired 12 contractors last year. If you paid each $600 or more (which means you’re required to issue a 1099-NEC form), that means you’re collecting a W-9 form from each contractor and responsible for issuing each contractor a 1099-NEC form. That’s two dozen tax forms. On top of that, you have to keep tabs on their invoices, payments issued, timecards, and more. 1099 payroll software takes the dread out of paperwork and tax season by issuing, organizing, and storing documents for you. 

• It prevents costly errors: To err is human. Unfortunately, that reasoning won’t fly with the IRS. The right payroll software will significantly reduce the risk of accidental non-compliance by ensuring that you’ve got your ducks in a row when it comes to 1099-NEC forms, W-9 forms, sending, tracking, and managing payments. Meanwhile, you can rest easier knowing that you’ll stay out of hot water with Uncle Sam.

Five Must-Have Features in 1099 Payroll Software

The measure of great 1099 payroll software is its features. You’ve seen how payroll software can help streamline your business operations, so let’s look at which features are essential. Here are five must-have features look for:

1. Auto-Onboarding and Management

You’re bringing on a new contractor. If you had to choose between juggling paperwork or collecting information manually vs. clicking a few buttons to get the job done, which would you pick? Automated contractor onboarding and management will streamline the whole process from start to finish. It can:

• Collect required documents like W-9 forms

• Automatically generate tax forms like 1099-NECs

• Securely store contractor information

• Process contractor payments

• Track payment history

• Centralize all your paperwork in one place

When you can take onboarding and management tasks off your to-do list, you can focus on growing your business, spending time with loved ones, or taking some time to recharge.
 

2. 1099-NEC Form Generation

Tax season can be daunting for many businesses, so 1099 payroll software needs to be able to generate and issue 1099-NEC forms automatically. The last thing you want to be doing during tax season is figuring out which of your contractors need 1099 forms and then manually creating them one by one. Software that can take care of that for you is a huge win in terms of time saved and reducing the risk of errors. No one would argue that tax compliance is fun, but luckily, there are tools to help do the hard work for you.

3. Customized Financial Reporting

To make informed decisions for your business, you have to be—you guessed it—informed. The right data and knowing where your money is going is key to supporting your overall business growth. To that end, look for payroll software that can provide tailored financial reports. You should be able to get insights into how much you’ve paid a contractor, when, and exactly what for. This information allows you to budget, plan, and manage your business finances more effectively. 

4. Bookkeeping Integrations and Expense Tracking

Hiring independent contractors can be a tax-deductible business expense. And when it comes to taxes, deductions are a good thing. That's why it makes a lot of sense to have your 1099 payroll software integrated directly into your bookkeeping. You'll be able to seamlessly track payments to contractors and categorize those payments as business expenses. This type of integration is a game-changer, especially for small businesses or solo entrepreneurs who might not have the luxury of a dedicated accountant. 

5. Simple and Fast Payments

Whether managing one contractor or a dozen, the last thing you need is a complicated or lengthy payment process. When choosing 1099 payroll software, look for a user-friendly interface and fast deposit times. Most payroll platforms are subject to standard direct deposit times of 2-4 days (and sometimes longer). Others, like Found, offer instant payments. Paying contractors promptly shows that you value their work and time, which, in turn, helps strengthen your relationship.

The Best Free Payroll Software for 1099 Employees

By now it’s probably clear that 1099 payroll software brings a lot to the table. Although pricing varies by software provider, they usually charge a monthly fee in addition to a per-contractor fee. Depending on how many contractors you have, this could add up to hundreds or even thousands of dollars a year in expenses.

That’s where Found comes in. With Found, you can manage and pay your contractors for free, with no monthly or per-contractor fees to make and track contractor payments. Every payment is automatically recorded for easy review at tax time and tracked for year-end 1099 forms. With seamless integration into Found’s bookkeeping features, we’ll also help you find tax deductions for your contractor payments as well. Simplify managing your 1099 contractors and say goodbye to paperwork by effortlessly welcoming and paying new contractors with just a few clicks. Sign up for Found today.

The information on this website has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax advice.