Looking to get a job done without the hassle—or, let’s face it, cost—of hiring a full-time employee? Enter the world of 1099 contractors, also known as freelancers or independent contractors. In other words, they’re workers that perform a job for you but aren’t technically employees of your business.
Working with a 1099 contractor can be a fantastic way to get a job done well without the costs of a full-time employee. Even the biggest players in the game are making heavy use of freelancers and contractors these days. In fact, according to DemandSage, Google employs more freelancers than it does permanent workers.
How do you find a contractor, and how is there anything you need to know when hiring one? Let’s find out.
Here are a few key differences between 1099 contractors and W2 employees:
The main benefits of using contractors are flexibility, cost savings, and access to specialized skills. This can be a win-win situation for businesses because hiring a contractor who produces better quality work may be more affordable.
The main disadvantage is that the contractor might not know how your business operates, so there can be additional onboarding time. Another potential disadvantage is your reduced control over how and when a contractor works—they may not be operating on the same schedule as you.
Some of the biggest benefits of hiring contractors are flexibility, scalability, cost savings, and the ability to meet specific needs. Let’s explore each of these in greater detail.
Using 1099 contractors allows businesses to scale almost on demand as needed. In addition, since the contractors are often hired for either a single project or a series of projects, you don't need to worry about continuing expenses once the short-term need passes, which can be a big advantage.
Not having to provide benefits can be a significant cost-saving for businesses. Contractors and freelancers also typically require less training than W2 employees since they don't need training on how you operate.
You also don’t pay the employer portion of the contractor’s Social Security and Medicare taxes. Instead, the contractor is responsible for paying both their part and the employer ’s portion of these taxes as self-employment tax.
Freelancers and other 1099 contractors are often highly specialized. They can afford to be since they typically hop from project to project and are hired for their specific skill set. No matter how specific your need is, there's probably a contractor out there that can meet it.
For the businesses hiring these contractors, this is a win. The specialization means that they’re usually very good at what they do—since they’re hired for a particular job, they don’t need to worry about being able to perform the ancillary tasks that a regular employee might.
Now that you know why you should consider hiring contractors, you might wonder how to find them! This can be intimidating if you've never done it before, so here are a few things to remember.
Having a clear idea of what job you want done is important for several reasons:
Minimize back-and-forth communication: Contractors often have multiple offers at once. By presenting a clear and concise description, you eliminate the need for lengthy discussions, making your company all the more enticing.
Ensure the right fit: Clearly defining what you’re looking for ensures that you hire the right person for the job. Contractors can have varied skill sets and expertise, even in the same field, which is important to get the right fit.
Avoid future headaches: Setting clear expectations upfront will help avoid potential problems with timing, payment, and scope of work. These are three areas where you (and the contractor) might experience the most friction, so laying them out in advance can save a lot of headaches down the road.
When describing the job or project, make sure to include the following details:
A comprehensive description of the work you want completed
The timeframe for doing it
Whether remote work is feasible for the contractor
The rate you’re willing to pay for the job
Remember that some contractors may have different rates, availability, or methods. Sometimes it can be beneficial to negotiate if there’s a particular contractor you’d like to work with—the experience or expertise might make it worthwhile to pay a bit more, for example.
The most common ways to find contractors for your business are through referrals and online platforms, such as social media and job boards.
Word of mouth and referrals: Simple referrals are often the best source of good contractors. Chances are, you have some business contacts that have successfully used contractors before—ask for referrals! Incidentally, this is also typically the best source of new work for the contractors, as well.
Social media: Social media can be a fantastic source for finding contractors—especially Twitter and LinkedIn. If you post that you need a contractor, freelancers will find you. There are also some freelancers that go around the various social media sites and aggregate job postings for weekly emails, so your tweet may have more reach than you think.
Freelancing platforms: Platforms like Upwork and Fiverr have become fairly popular over the last several years. While these sites offer access to a wide talent pool, keep in mind that fierce competition may lead to pricing pressures. Remember the adage "You get what you pay for," but don't overlook the opportunity for great work at a reasonable rate.
Online job boards: Specialized job boards like ProBlogger and Superpath cater to specific niches, such as copywriting and content marketing. These differ from freelance platforms in that they only connect the company with the contractor—sites like Fiverr are more involved in the relationship.
As you sort through potential contractors for your business, it becomes essential to vet them properly. Here are some things to do before you sign the dotted line:
Review their website and social media profiles: Most freelancers will have an online presence, typically in the form of a website and social profiles. Looking over these can give you an idea of whether the contractor knows their stuff. Twitter and LinkedIn tend to be the most popular platforms for freelancers.
Review the contractor’s portfolio: Many, if not most, contractors and freelancers will have a portfolio of past work they can show you. Typically, this will be hosted on their website, but if not, feel free to request examples. In many ways, this is the equivalent of the contractor’s resume and serves to highlight past work and (ideally) the results of that work.
Ask for testimonials or references: One of the best ways to vet contractors is to check testimonials from past clients. These give you an idea of the type of work they do and (perhaps most importantly) how they are to work with. Another reason referrals are so great is that the contractor has been pre-vetted by the person referring them.
Once you’ve found the right contractor, your last step is to get them onboarded and ready to start. This typically involves drawing up a contract, collecting W9 forms, and possibly adding them to any project management systems you use.
Draw up and sign a contract
Since contractors aren't employees of your business, they aren't covered by the legal agreements you likely use for full-time employees. Therefore, it's essential to draw up contracts covering any potential legal issues.
While the exact structure and scope of these contracts will vary from business to business—and you should definitely consult a legal professional—we can give you some idea of what to include:
Payment rate and terms
Length of engagement, if applicable
Who owns the rights to the completed work
Any confidentiality or non-compete clauses that are needed
A termination clause that covers the grounds upon which either party can terminate the agreement
Have the contractor fill out a W9 form
You’ll need to file a 1099-NEC form with the IRS to report your payments to contractors. A W9 form collects the contractor’s tax identification number (TIN) so you can do this properly. As such, it’s important to do this before sending any payments, but the simplest time is during the onboarding process.
Add the contractor to your systems
Onboarding is a great time to establish the contractor in any software systems you use for finances and project management. For example, give them access to important files or have them set up an account with a payment processor. Doing this now ensures they can dive right into the work when it comes.
Since contractors aren't employees of your business and often work remotely or on a different schedule, managing them can be a bit of a challenge. In an ideal situation, you won't need to do much (or any) management—the contractor should be able to handle the assigned work and keep you in the loop along the way. But, of course, this isn't always the case.
The main way to manage contractors, as with regular employees, is through strong communication. This is especially important with contractors because they don't work full-time for your business—in other words, they may not know all the methods, procedures, and other nuances of how you operate and what you expect.
One of the best ways to manage contractors, primarily if you work with multiple at once, is with a project management tool like Trello or Notion. This helps keep everyone on the same page and provides a convenient way to share files and other important materials.
When discussing clarity in the job description, setting clear expectations is key. It reduces unnecessary back-and-forth communication and eliminates many management headaches that can crop up when there are too many unknowns.
When dealing with 1099 contractors, the financial aspect can be intimidating—mainly if you've never worked with a contractor. Here are some tips to ensure a smooth process:
Request a formal invoice: To facilitate accurate records and proper payments, have the contractor submit an actual invoice to your business. Don’t rely on “verbal” agreements to determine fees.
Keep accurate records: Along the same lines, make sure you perform thorough, accurate bookkeeping and keep records of all financials. For example, save copies of invoices and record the dates and amounts of payments. Robust accounting software can be a major help by automatically logging these transactions.
Pay on time: Finally, make your payments when you say you will. This can help foster goodwill with the contractor and build a more respectful, productive relationship in the future.
Aside from having a solid contract, proper classification is the most important legal consideration when working with contractors. In other words, it's crucial to report contractors correctly to the IRS and properly classify contractors as contractors and employees as employees since you must provide benefits for the latter.
The rules around what constitutes a contractor have been debated in recent years. Generally, the Department of Labor considers how much control the employer has over the worker and the worker's opportunity for profit or loss. However, a proposed ruling on this topic may change the factors considered, alter certain workers' classifications, and make it more difficult to classify them as independent contractors.
While this ruling is still up in the air, the bottom line is that businesses need to be aware of the potentially changing rules and regulations to ensure proper classification.
Working with contractors is a fantastic way to reduce costs and boost productivity in your business. Finding, hiring, and managing great contractors and freelancers can take time and know-how but is worth the investment.
When it comes to managing the financial aspects of dealing with contractors, a tool like Found can be a huge help. Our automated accounting and tax tools help you focus on what matters—finding great contractors to do great work. Try Found for free today!
This material has been prepared for informational purposes only.
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