Just like hiring a new employee, there are tons of best practices when it comes to working with independent contractors. Here are some of our favorites.
First Thing’s First: Paperwork
You know the feeling when you are thinking about something you have to do, but you’re in bed or somewhere inconvenient, so you tell yourself, “I’ll remember, I don’t need to write it down”? We all know it’s not true, right? That’s the same feeling you should get when it comes to requesting paperwork from independent contractors. Always do it first, so you (and they) don’t forget!
Before any work is started or agreements signed, you’ll want to give your independent contractor a Form W-9 and have them fill it out and return it. W-9s are for your records and they help you with filing your taxes later.
Once you have that settled, you can start negotiations, contracts, or any other agreement you are looking to create.
Establish Communication Expectations and Boundaries
This one goes both ways. Because the nature of an independent contractor relationship can range from short-term or temporary to long-term and near-permanent, it’s important to set boundaries for when and how you are going to communicate with each other.
This includes discussing which days and times work best for phone calls, emails, texts, etc., as well as which communication medium you would like for specific things like project updates, discussion of issues, or amendments to the original project.
Do you want weekly updates? Daily? Would you like to set up meetings after each project phase is complete? The more you offer upfront, the easier it is to work through any issues that may arise later.
Boundaries are also important. If your independent contractor doesn’t work weekends or is going on vacation during your time together, those things need to be respected. If you anticipate lots of “off the clock” questions, discuss with the contractor what medium or communication method will work best to catalog these in a way that can be reviewed at a later time.
Issue Form 1099-NEC
Once the year ends, be sure to send any and all independent contractors that you paid $600 or more a Form 1099-NEC
Here’s the information that needs to be included on the 1099-NEC:
- Contractor name
- Contractor address
- Contractor SSN or EIN
- The full amount you paid the contractor during the tax year.
You must also classify the payment type (check, cash, credit card, etc.) and the reason for the payment or payments.
And don’t forget, if there were other prizes, fees, or awarded income that came from that partnership, you may also need to issue a Form 1099-MISC.
Keep Good Records
The time to keep your records organized is not when you have an issue with an independent contractor or an error on a tax form. It’s a best practice to keep financial (and especially tax-related) records for several years and to store copies in a few different physical and virtual locations. Remember when you said you didn’t need to write that down? That’s why we have all these tax forms – to keep things organized when you are busy thinking about more important things!
Want An Easier Way to File 1099s?
Working with independent contractors is becoming more and more common, which means your business will be responsible for more 1099-NECs than you were previously filing.