A Step-by-Step Guide for Hiring a 1099 Contractor

The 1099 contractor pool is a perfect opportunity for businesses to access specialized professionals on a temporary basis.

Before small business (SMB) owners wade in too deep, they must understand a few things.

• What exactly is a 1099 contractor?
• How do they differ from traditional employees?
• Where do you find them, and how should you integrate them into your project?

If you have a project that could use the skills of a specialized professional, this blog post will walk you through the process of finding and hiring one for the first time.

Understanding 1099 Contractors

A 1099 contractor is named after the IRS form 1099-NEC (Non-Employee Compensation). This is a form that businesses use to report payments made to workers who operate independently from the hiring company to the IRS.

Employers looking to hire 1099 contractors must clearly understand the difference between them and traditional employees, as failure to accurately classify any employee can lead to significant financial and legal repercussions.

1099 Contractor vs. Traditional Employee

Unlike traditional employees, 1099 contractors are self-employed individuals who provide services under the terms of a contract or on a project basis.

One critical legal distinction is the employer's degree of control over the work. For a 1099 contractor, the focus is on the result of the work. This means the employer doesn’t control how, when, or where the work is done.

1099 contractors are also free to negotiate their own rates for services, which may fluctuate based on market demands. Additional state laws or court rulings may also provide additional elements critical in drawing the difference between 1099 contractors and employees.

Benefits to Employers

The flexibility of 1099 contractors is a benefit to employers for several reasons.

First, employers are not responsible for things like benefits, health insurance, or paid time off for 1099 contractors. Additionally, the lack of permanent status for 1099 contractors means that employers can easily scale the use of contractors up or down based on business needs.

This increased flexibility also allows companies to hire contractors with specialized skills for specific projects, adding a competitive advantage in rapidly changing markets.

5 Steps to Follow When Hiring a 1099 Contractor

If you’re new to the process of hiring 1099 contractors, follow these 5 steps:

1. Determine Your Needs

The first thing you’ll need to have a grasp on is the duration and scope of your project. Short-term projects that require specific expertise are ideal for short-term contractors. Tasks integral to business functions might better suit traditional employees who can offer a long-term commitment.

Second, you’ll want to determine how much control you need over how and when the project is done. 1099 contractors operate independently, meaning you’re relinquishing control over the work schedule and methods.

Finally, consider your budget. Contractors are typically paid a negotiated rate for the entire project or per-task. This can be more cost-effective in the short term, but becomes expensive on longer projects.

2. Finding 1099 Contractors

Finding the right contractor involves a strategic approach to sourcing talent.

Leverage online platforms like Upwork, Freelancer, and Fiverr. These platforms offer a vast pool of freelancers with various skills and experience.

Personal networks and social media like LinkedIn can be invaluable tools for finding qualified contractors, but be mindful of compliance with out-of-state laws.

Industry referrals are another powerful way to find excellent candidates. Ask your professional network, including other businesses and colleagues, if they have any recommendations for the role in question.

Advertising on job boards and industry-specific forums is a great way to attract available contractors.

Finally, engaging with talent agencies and consulting firms can be a great way to find contractors with highly specialized skills or experience in specific industries.

3. Vetting Potential Contractors

The vetting process lets you know that candidates have the skills necessary to complete the project, confirm their reliability, and ensure you’re working with a reputable and competent contractor. Here’s how to do it:

Review portfolios and work samples to assess quality, style, and expertise.

References and testimonials can be useful to get a feel for what it’s like to work with them — but beware, most given references are unlikely to say anything negative about the contractor.

Conducting interviews is the best way to gain insight into the contractor’s communication skills, enthusiasm, and understanding of the work.

Finally, discuss availability, deadlines, and payment terms to ensure you and the contractor are satisfied with the potential arrangement.

4. Legal and Contractual Considerations

The most critical legal consideration is the correct classification of contractors. The IRS and the Department of Labor have guidelines in place to help employers determine the correct classifications.

When it comes to tax obligations, you’ll generally need each of the following from the contractor you plan to hire:

Employer Identification Numbers (EINs) are required if you pay the contractor more than $600 annually.

A completed W-9 is necessary to obtain an SSN, which is necessary for tax reporting purposes.

File a form 1099-NEC with the IRS for every contractor to whom you pay more than $600 in a fiscal year.

Make sure you have a contract in place that defines:

• The scope of work
• Clear payment terms
• Intellectual property rights
• Non-disclosure agreements
• Termination and dispute resolution clauses

Finally, take a look at any local laws that might apply to contractors in your state.

5. Onboarding

Having a streamlined onboarding process that respects a contractor's independence is important while ensuring you have all the information necessary to start the work.

Ensure that both parties have reviewed and signed the contract.

Then, collect necessary documents like the W-9 and direct deposit information.

Make sure the contractor has access to all necessary tools and systems.

Finally, perform a company orientation and project briefing to get the contractor up to speed.

BBSI’s Strategic Staffing Solutions Can Help Employers in Any Industry

The pool of available 1099 contractors is an exciting opportunity for SMB owners looking for workers with specialized skills for temporary postings. Working with these contractors can be a perfect way to invest in your company's growth without hiring another full-time employee.

Regardless of whether you’re looking to identify talent for temporary or permanent postings, PEOs like BBSI can help you build top-tier teams for any project.

Thanks to our national recruiting network and decades of experience in various industries, we can provide SMB owners with access to a diverse talent pool.

You can save time and stop searching through an endless number of platforms for the right 1099 contractor. Get in touch with BBSI today and we’ll lend you the support you need for your search.