If you’re running a business, you may need to hire independent contractors to help with specific tasks or projects. And when it comes time to pay them, you’ll want to make sure you’re doing it the right way. Here’s a look at the best way to pay independent contractors.
How to Pay Independent Contractors
The first step is to figure out how much money you owe your contractor. You can do this by using an online calculator like Xero’s QuickBooks Online Calculator. Once you know what you owe, you can calculate how much you should be paying per hour and per week.
Paying Hourly
If you’re hiring someone for a single project, you can use their hourly rate as a guide. For example, if they charge $50/hour, then you’d have to pay them $500 every two weeks.
Paying Weekly
If you’re hiring someone for a longer project or if they’re working on a regular basis, you can use their weekly rate as a guide. For example, if they charge $200/week, then you’d have to pay them $1,000 every two weeks.
Paying per Project
If you’re hiring someone to do a specific project, you can pay them based on the project’s total cost. This is the most common way to pay contractors, as it’s easy to calculate and budget for.
Regardless of how you choose to pay your contractor, always make sure you have a written agreement in place. This will help avoid
Once you know how much you need to pay your contractor, the next step is to figure out how to pay them. You can either send them an invoice for each project or you can pay them on a regular basis.
Pay On a Commission Basis
Some contractors may prefer to be paid on a commission basis. This means they’ll get a percentage of the sales they generate. While this can be a good arrangement for some businesses, it’s important to make sure the contractor is generating enough sales to make it worth their while.
Pay On Retainer
Another option is to pay your contractor on a retainer basis. This means you’ll pay them a set amount of money each month, regardless of how many hours they work. This can be helpful if you’re not sure how many hours the contractor will work each month.
Independent Contractor Contracts
If you’re going to be paying your contractor per project, make sure you have a clear understanding of the work that needs to be done and what the final product should look like. This will help you avoid any misunderstandings down the road.
If you’re going to be paying your contractor on a regular basis, make sure you have a signed contract that outlines the work they’ll be doing, how much they’ll be paid, and when they’ll be paid. This will help protect both you and your contractor.
No matter how you choose to pay your contractor, always make sure you have a written agreement in place. This will help avoid any misunderstandings down the road.
The 1099 Form
If you’re paying your contractor more than $600 per year, you’ll need to issue them a 1099 form. This is a document that reports how much money a contractor has been paid during the year. It’s used to report income to the IRS and it’s important to make sure you get it right.
There are a few things to keep in mind when issuing a 1099 form:
– You only need to issue a 1099 form if you’re paying your contractor more than $600 per year.
– The 1099 form should be sent out by January 31st.
– The form needs to include the contractor’s name, address, and social security number.
– The contractor is responsible for reporting the income on their taxes.
– You should keep a copy of the 1099 form for your records.
If you’re not sure how to issue a 1099 form, or if you have any other questions, contact your accountant or the IRS. They’ll be able to help you out.
If you have payroll set up with Quickbooks, you can issue your 1099’s there as well.
Backup Withholding
Backup withholding is the practice of withholding federal income taxes from payments made to independent contractors. The backup withholding rate is currently 25%, so for every $100 payment made to an independent contractor, $25 will be withheld for taxes.
There are a few things to keep in mind when it comes to backup withholding:
– You only need to backup withhold if you’re not sure of the contractor’s tax status.
– You should backup withhold for any payments made to an independent contractor, even if they’re not receiving a 1099 form from you.
– You need to backup withhold at the 25% rate.
– The backup withholding amount should be entered on Form 1099-MISC, Box 7.
– You need to keep a copy of the backup withholding statement for your records.
If you have any questions about backup withholding, contact the IRS or your accountant.
Setting Up Contractors on Payroll
If you’re hiring a contractor for a long-term project or if they’re working on a regular basis, it may make sense to set them up on your company’s payroll. This will make it easier to track their hours and pay them on a regular basis.
There are a few things to keep in mind when setting up independent contractors on payroll:
- The contractor should have a social security number.
- You’ll need to issue them a W-9 form.
- They probably aren’t independent if you are telling them what to do, or when and where to show up.
Quickbooks is a payroll software that can help you manage your contractor’s payroll. Intuit online is an accounting platform that offers payroll as an upgrade. You can pay your contractors through QuickBooks by issuing checks or setting up direct deposits.
It can be tricky to know how to pay independent contractors the right way. But with a little bit of planning and some careful thought, you can make sure everything goes smoothly. By using an online calculator and following these tips, you can make sure your contractor is paid fairly and on time.
