How to hire a 1099 employee: A step-by-step guide

Growing a small business is no small feat. As an entrepreneur, you likely wear many hats and manage countless responsibilities on your own. You have huge dreams and plans that exceed the limits of your bandwidth.

At some point, every founder realizes they need support to take their company to the next level. Yet hiring full-time employees feels out of reach. You may not have the budget or need for permanent headcount.

This is where bringing on freelance team members can be a game changer. By hiring independent contractors on an as-needed basis, you gain flexibility to scale up or down. It lets you delegate tasks that fall through the cracks while you focus on your zone of genius.

But where do you start? Employing freelance or contract workers has its own learning curve. You need to understand classifications like independent contractors and 1099 employees. Doing it right matters, given legal considerations around misclassifying roles.

Not to worry! In this beginner's guide, we’ll walk through key steps so you can hire 1099 staff the right way. Consider us your partners in lifting hiring headaches off your shoulders. By the end, you’ll feel equipped to flexibly grow your fleet through on-demand workers (and you'll have the resources you need to do it on Contra).

What are 1099 employees? 🤔

Before diving into the how of hiring 1099 employees, let’s cover the what. Knowing key characteristics will illuminate if this flexible staffing option aligns to your needs.

1099 employees, also called independent contractors, are external workers that provide services to your business on a non-permanent basis. Unlike W-2 employees who join your payroll permanently, 1099 hires stay independent.

Some key features that distinguish 1099 workers:

• They are self-employed business owners who contract for specific projects or timeframes. This means you hire them on-demand as you need additional help, rather than retaining them forever.
• They submit invoices to you for their services, rather than getting predictable payroll checks. You pay them the agreed upon rates per project milestones or hours logged without taking out taxes.
• They are responsible for paying their own federal, state, and payroll taxes. As the hiring company, you avoid paying benefits like healthcare or social security.
• They supply their own tools, equipment, training and certifications to deliver work. For example, a 1099 virtual assistant would handle their own computer, software, internet connection, and skill building.

The flexibility to size up or down coupled with reduced financial overhead makes 1099 arrangements beneficial for startups and bootstrapped teams.

Why hire 1099 employees?

Hiring contractors as 1099 employees allows nimble scaling to meet growing demands. You avoid long term overhead, paying only for active hours logged. Rather than carcinogenic commitment, it grants fluidity to size up or down based on needs.

Specific perks include:

Cost Savings

Paying contractors for project-based work limits expenses to active workload. You also bypass investing in permanent salaries, benefits, payroll taxes, insurance, hardware, software, tools, office space and more required of W-2 employees. Every dollar goes directly into the timely services rendered.

Specialized Expertise

1099 workers are self-employed business owners who invest in specialized skill sets. Need an ace social media marketer just for product launches? What about an sales lead generation expert for a new campaign? Contract talent lets you seamlessly gain niche competencies that perfectly match each business goal without requiring months to hire for a permanent seat.

On-Demand Flexibility

Scaling up or down is simplified with fluid contractor arrangements. Planning a short-term project requiring extra hands on deck? Add more help just for that timeframe. Hitting a slow season with less on your team’s plates? Reduce spend on temporary members not currently utilized. The on-demand flexibility caters perfectly to modern workloads.

A guide to hiring 1099 employees for your business 🧾

Step 1: Validate they are "1099 qualified"

As an employer, properly classifying roles lies in your hands. That’s why the first step is confirming an incoming worker truly meets the IRS criteria for 1099 independent contractor status.

Review the key factors qualifying someone as a contractor:

• They own an established business entity outside of you that offers similar services to multiple clients. For example, a bookkeeper with 5 other small business clients in addition to you.
• They set their own hours, rates, methods and processes without you overseeing day-to-day. You care about end results not mandating constant check-ins.
• They use their own hardware, software, tools, work site, branding and training needed to deliver work.
• The relationship, projects and timelines are outlined in an Independent Contractor Services Agreement you both sign. This oversees the temporary, non-permanent nature of the arrangement.

Contrast this to a W-2 employee who must work specific hours, gets paid salaries you dictate, receives company equipment to perform roles, and answers to manager mandates. Blurred lines lead to misclassification issues.

Step 2: Source your independent contractor talent

Once satisfied a 1099 classification fits, it’s time to source qualified individuals looking for contract work. Popular places to uncover freelance talent include:

• Online marketplaces like Contra that allow you to post jobs and review portfolios
• Professional associations and trade groups in your industry
• Freelancer referrals from other business owners
• Social media calls asking your network for recommendations

Cast a wide net through multiple channels. Be specific in communicating required skills, experience, availability and rates to attract the best fits. Set up screening calls to assess work samples and compatibility before progressing talks.

Step 3: Interview potential candidates

After identifying promising applicants, it’s interview time. While skills are crucial, cultural add is equally important for partnerships with mutual trust and transparency.

During interviews, assess:

• Abilities to execute services required through questions about previous projects and requests for work samples
• Professionalism through appearance, communication style and initial responsiveness
• Personality fit and work values to ensure smooth collaboration
• Reliability, timelines and willingness to meet deadlines based on availability
• Resources they supply to deliver work like software, equipment and tools
• Payment terms and rate structures they request

Leave space for their questions to evaluate mutual alignment too. If satisfied on both ends, reference checks and negotiations proceed.

Step 4: Check your independent contractor's references

Before extending any formal offer, do your due diligence by checking 2-3 references. Verify past clients or employers they’ve listed to fact check:

• Work quality meeting expectations
• Ability to complete projects on time
• Overall professionalism and reliability
• Reason for ending working relationships

Look for promising commentary without major red flags. Any hesitations from references should give you pause.

Step 5: Make an offer that fits their expertise and your hiring budget

Once references check out, extend a preliminary offer that outlines:

• Official title and overview of role
• Required tasks, expectations and objectives
• Project timelines or ongoing hours requested
• Milestones dictating work delivery schedule
• Payment amount and cadence (eg. $X per hour, project, retainer etc)
• Policies around providing own tools, training, hardware, software etc.

Ensure you align on these tangible details before further investment. Clarify any questions and discuss room for negotiation if needed.

Step 6: Sign an independent contractor agreement to stay legal

Finally, protect both parties through a legally binding Independent Contractor Services Agreement covering:

• Official name of contractor’s independent business
• Scope, timeline and payment terms
• Contractor status verifying they supply own tools, training etc
• Non-disclosure policies about protecting sensitive information
• Right to hire other contractors at will
• Causes and procedures for early contract termination

Check in with a lawyer when shaping agreements. Outline enough legal protection without overbearing strictness hampering relationships. Now shake hands virtually or in person to kick off your new flexible resourcing!

Tips for navigating successful 1099 partnerships 😊

Congrats on adding flexible help through an independent contractor! Now the rewarding work begins in nurturing healthy ongoing partnerships.

Steward relationships with care and communication to maximize value long-term. Here are tips once 1099 workers are actively contracted:

1. Check-in with your hires regularly

Schedule periodic check-ins to assess satisfaction on both ends. Are contractors getting paid fairly for time worked? Do you have feedback to enhance outputs? Open channels prevent future conflicts.

2. Adjust payment rates as the work and scope evolves

As contractors take on more responsibility or enterprise grows, reassess if current rates reflect value. Shop competitor wages on marketplaces to benchmark fairly. Increase pay when reasonable to reward contributions.

3. Track and communicate clear performance metrics

While contractors direct day-to-day tasks independently, institute success metrics aligned to key results expected for the role. Track data like deals closed, project quality scores or output volume to guarantee high standards.

4. Stay open to negotiating rates over time

Revisit agreements as needs shift to keep alignments tight. Are expanded hours required? Do tools necessitate updating? Renegotiate details through open communication when no longer fitting. Remember, an independent contractor may be pursued by other clients as well - so keep them payed well to keep them on your payroll!

5. Know when it's time to end the partnership

In less frequent cases, partnerships may sour over work ethic, culture fit or skill gaps. If reasonable efforts to provide feedback and resolve issues fail, know when to professionally part ways for the benefit of both parties.

How To pay your 1099 employees 💰

When it comes to compensating independent contractors, you have more flexibility than traditional payroll. However the process still necessitates forethought to do right legally.

Here are key considerations around paying your 1099 workforce:

OptionsAgree on payment terms upfront

During initial negotiations, decide compensation rates and payment models before contracting. Common 1099 pay options:

• Hourly rates for time worked
• Flat project fees based on deliverables
• Monthly retainers for ongoing availability

Outline expectations clearly in an Independent Contractor Agreement both parties sign. This creates shared understanding from the outset.

Pay upon receipt of invoice

Unlike W-2 employees who earn steady biweekly checks, 1099 workers get compensated upon submitting invoices detailing work delivered and fees owed.

Upon finishing milestones outlined in contracts, your independent contractors should provide invoices outlining:

• Dates and hours worked
• Projects completed and items delivered
• Amount due based on work accepted and terms agreed upon

You then process payment based on invoice details.

Leverage payroll software

While you avoid payroll taxes and administration, consider using payroll software like Gusto or Quickbooks that facilitates:

• Contractor onboarding
• Automated invoice and direct deposit capabilities
• Tax form generation including 1099-NECs

Proper tools streamline compliant compensation while building contractor trust.

Remember = contractors pay their own taxes

Come tax season, you’ll provide a 1099-NEC documenting annual compensation. Contractors must then independently estimate taxes owed and file returns appropriately.

The future of freelance is here - is your business ready to grow? 🚀

Adding independent contractor capabilities allows growing teams to strategically expand capacity. Avoid overextending internal bandwidth when specialists can augment abilities on-demand.

Here are the key lessons for small business owners:

1. Validate 1099 classifications before hiring to prevent mislabeling or hiring the wrong roles. Look for true subject matter experts with existing external clientele successfully managing their own independent business activities.
2. Institute Independent Contractor Agreements to keep your work expectations, timelines, rates and relationship parameters in line - and to prevent conflicts. Revisit occasionally as your needs evolve. If you're hiring a contractor in another country, make sure your agreement complies with local laws. Contra offers locally compliant contracts to help with this!
3. Monitor work quality and contours of partnerships through regular check-ins. Compensate fairly via invoice payments and show appreciation for top talent that becomes invaluable extensions of your team.

If the contractor hiring process still feels daunting, don't do it alone. Check out Contra instead - the leading online marketplace for growing, managing, and compliantly paying your contractor network.

With Contra’s talent matching, compliant contracts, and tax automation, easily connect to the 1099 dream team ready to fuel your venture’s growth. The administrative lift gets lifted so you can keep eyes on your startup or agency vision.

Ready to learn more? Visit Contra today and browse our listings of ready-to-hire freelancers for nearly every part of your business operations!