• Personal Taxes
  • Bookkeeping
  • Accounting
  • Payroll
  • Business Taxes

What To Do When You Hire A Contractor

Many businesses benefit from hiring contractors to assist them.  However, many business owners confuse contractors with employees.   Many contractors are confused as well.   When you hire a contractor, most people know they do not have to withhold taxes. Few people realize that they still need to report their payments to the Internal Revenue Service (IRS). One crucial point is that you can not hire a contractor and treat them as employees to avoid payroll taxes. This process will catch back up with you. When you hire a contractor, you will need the paperwork required for that contractor so you can adequately report their earnings. Also, depending upon the type of contractor, you will need to consider a system for tracking hours worked and the payments you need to process for the contractor. Industry standards typically determine your contractor types.


Determine The Type Of Contractor You Need

  1. Do you need a professional consultant to advise, create systems, and train you?  Such as an accountant.  This person is professionally trained to advise and train you.  I am a professional accountant. 
  2. Do you need a professional contractor or firm to complete a specific task? Such as a bookkeeper. (This company is trained to complete the service)
  3. Do you need someone to perform the task for you but would need training?  You understand the correct process and the person performs the tasks for you (delegation) but this person doesn't necessarily have formal trainining.



Create the Job

  1. What do you need them to do?
  2. What is your agreed pay for the work?
  3. How long will the job last?
  4. What is the deliverable if not based on hours? (understand your deliverable so you will not be disappointed.)
  5. How many hours do they need to work, if based on hours? You do not control when they work but you agree on the number of hours that you need worked. 
  6. Depending upon the job do you need them working in a specific time frame?  But remember you don't control their work hours or when they work but it is an agreement process.  If you need someone to work 9am to 1pm that is part of the agreement.  If the contractor can't work this time frame seek another contractor but you can't require them to clock in at this time frame.  The contractor is a business owner so they would need to determine if they can make that agreement.
  7. Will you pay for the contractor's tools as part of their payment? Remember, contractors, are responsible for their own tools and supplies.  The contractor can charge you, the client, to purchase these tools when they invoice you. However, if you have a contractor that does not invoice and you pay for their tools for them, you need to confirm it is in addition to the payment or a part of the payment.


Create A Contractor Information Form

Suppose your contractor does not have a service agreement. Use a contractor information form to collect data about the contractor and to put your agreement into writing. You need this form on file for Information, such as the agreed payment amount. Include all the Information for the agreement.

IC Example Form


Collect A W-9 Form for 1099 Tax Reporting

Collect a correct W-9 for the contractor. Remember, an incomplete form will cause headaches at the end of the year. The W-9 is used to create the 1099. You will need to send the contractor a W-9 to collect the Information for the 1099. Then you will send the completed 1099 at the end of the year by January 31st of the following year. You only need to send a W-9 if the contractor does not invoice you and collect payments via their payment system.   

W9 and 1099 Example


If you would like assistance with contractor setup and maintenance, I offer contractor management services. $225.00 for the initial setup and then $150.00 per month for up to 5 contractors (each additional contractor $35.00 additional per month).

  •    I will collect the Contractor Information.
  •    I will collect the W-9 Information.
  •    I will tracking contractor time.
  •    I will calculate and tracking the contractor payments. 
  •    I will help you select and manage payment methods- Such as direct deposit (if your bank offers bill payment for free or other applications like electronic checks, Zelle, Paypal, or cash app.)
  •    I will handle contractor questions and requests. (concierge services) 


DIY: Or a one-time setup fee of $150.00 setup for your process (you manage the contractors – collecting the information and contractor collection of payment and time information and questions).

  •    I will help you collect the Contractor Information.
  •    I will help you collect the W-9 Information.
  •    I will assist you with tracking contractor time.
  •    I will assist you with making, processing, and tracking the contractor payments.
  •    Assist with contractor questions and requests. (concierge services)  


At the end of the year, for a separate fee of $150.00 up to 10 contractors (plus postage and printing fees for any requested mail deliveries.)

  •    I will Issue the 1099 at the end of the year for all contractors.

Reach out to me for services on the contact me page: https://bpaccountingsolutions.com/about-me/contact-me




Author: Y. Michelle Coard, B.A.S, A.A.S in Accounting

Co-Owner of Business & Personal Accounting Solutions, Corp. based in Fuquay Varina, NC

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