Paying Freelancers and Contractors: How to Keep Your Business Healthy In The Gig Economy

Freelancers vs. Contractors Payroll

As employers navigate the gig economy, it’s important to know the difference between contractors and freelancers. Businesses have to be careful to pay these workers correctly and document payments for the IRS.  

If you’re wondering who exactly you hired and what you need to do to compensate them correctly and stay IRS compliant, we’re here to help. Here is everything you need to know about freelancers, contractors, and how they impact payroll. 

What Is a Freelancer?

So what sets freelancers apart from contractors? Freelancers work for themselves, they do not have employees, and they are usually not bound to an employer by a contract.

These types of workers can work wherever they choose and solicit as many clients as they choose. Everything about their work is up to them: how much they want to charge and how they do their work. In terms of the IRS, freelancers are classified as 1099 independent contractors. 

What Is a Contractor?

A quick answer to that is that a contractor is a freelancer with tighter parameters. Unlike a freelancer, an independent contractor works under a contractual obligation to deliver a service or product in a set amount of time. Also, independent contractors can be a person or a business. 

 Think of it like this: you can tell a contractor to bake a specific kind of cake for a specific day, but you aren’t going to tell them how to make it or how long they need to spend creating it.

There is a possibility that your company’s benefits could extend to contractors as well, in some scenarios. Whether it is the same sort of compensation package as the employees is irrelevant. If any benefits are included, you should issue a W-2 to these contractors. 

Paying Contractors and Freelancers

When it comes to generating paystubs for contractors and freelancers, it’s important to track all the payments you make.  

Contractors who receive benefits can be paid like employees. Remember, even though they are paid as employees, for tax purposes, they are not employees. Click here to find out about the important differences between employees and contractors. 

For tax purposes, freelancers are labeled as independent contractors. They fill out Form W-9, but they can be paid differently. Freelancers can be paid up front or after the job is complete. They can also be paid half up front and half after-the-fact. A wedding photographer, for instance, is a good point of reference for billing and payroll. Even though freelancers complete Form W-9, they are not contractors.

For more information about paystubs for contractors and freelancers, visit this blog.

Reporting Payments to Contractors and Freelancers to the IRS

Businesses are required to report payments to independent contractors, freelancers, and other nonemployees to the IRS every year. Employers file Form 1099-NEC to report nonemployee compensation. They are also required to send a copy of their return to the contractor or freelancer before the deadline.  

Pay Freelancers and Contractor Online With PayWow

Regardless of whether you are paying contractors and freelancers, PayWow can make your business life significantly easier. Figure out wages easily and have your withholdings and deductions calculated for you instantly. 

PayWow also keeps track of everything and helps you meet your IRS requirements. Employers can onboard unlimited contractors, pay by direct deposit or check, track jobs and payments, and meet IRS 1099 requirements easily. For more information on all the ways PayWow can help you pay contractors and freelancers and file with the IRS, click here.

Hire any type of worker and PayWow will help you pay them correctly and keep your business in good standing. Try PayWow today!

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