Contractor Payroll Checklist
Independent contractors aren’t employees – which means payroll works differently. You don’t withhold taxes for them, but you still need proper paperwork, accurate payment records, and year-end filings. This Contractor Payroll Checklist will walk you through every step of paying 1099 workers correctly. You can also download the printable PDF version.
Step 1 – Collect Contractor Paperwork
- Form W-9 (request for Taxpayer Identification Number)
- Signed contractor agreement (scope, payment terms)
- Proof of insurance or licenses (if required for your industry)
Step 2 – Set Up Payment Tracking
- Enter contractor info into your accounting/payroll system
- Record each payment with date, method, and amount
- Note if payments exceed $600 (threshold for 1099 reporting)
Step 3 – Make Payments Correctly
- Pay according to the contract (hourly, flat fee, milestones)
- Use direct deposit, checks, or payment platforms
- Keep receipts and confirmations
Step 4 – File 1099s at Year-End
- Issue 1099-NEC forms to contractors paid $600+
- File 1099s with the IRS by January 31
- File Form 1096 (transmittal) if filing by paper
Step 5 – Maintain Contractor Records
- Retain W-9s, agreements, and payment records for at least 4 years
- Keep copies of issued 1099s and IRS confirmations
- Separate contractor files from employee payroll records
Download the Contractor Payroll Checklist PDF
Get the printable version here: Download Contractor Payroll Checklist PDF
FAQs
Do I withhold taxes for contractors?
No, contractors are responsible for their own tax filings. You only provide Form 1099-NEC if payments exceed $600.
What happens if a contractor doesn’t provide a W-9?
You may be required to withhold backup withholding (24%) on payments until they provide it.
Can I pay contractors through payroll software?
Yes, most systems support 1099 tracking, but you must still collect W-9s and issue 1099s at year-end.
Stay compliant while paying contractors.
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Related Checklists
If you’re handling payroll for multiple states, you may also need our Payroll Tax Compliance Checklist and Payroll Recordkeeping Checklist
