Paying Independent Contractors: Delivering the Best Experience Possible
Streamline payments and paperwork for your contractors.
How should I pay an independent contractor?
Great independent contractors are hard to find. They’re also in high demand, which means they often have their pick of companies to work with. If you don’t create an experience that makes them excited to stick around, you’ll risk losing them to your competitors.When you’re working with and paying independent contractors, you want their time to be spent on the work — not late payments, unexpected fees, and paperwork. Streamlining the process, from onboarding documents to sending payments and beyond, makes your job easier and shows contractors they’re valued. That can lead to more open communication, faster turnarounds, and higher retention.Do: Pay independent contractors on time
Pay contractors by — or even before — the date you agreed to in their contract. When payment lands exactly when expected, you reinforce trust and keep your best people excited to take on the next project.- Set crystal-clear payment terms (due date, currency, method) in every contract.
- Work with a platform that automates payments and pays contractors directly into their bank accounts— fast, inexpensive, and contractor-friendly.
- Batch-approve invoices on a regular cadence (weekly or bi-weekly) so nothing slips through the cracks.
Don’t: Saddle contractors with hidden fees
You pay close attention to the fees your business incurs — but contractors often end up paying hidden costs, too. Depending on the payment method you choose, getting money into their bank account could cost them more than you realize.If you’ve ever withdrawn money from a foreign ATM, you were probably hit with at least two fees. Now imagine if that happened every time you got paid. That’s what happens when independent contractors are forced to use e-wallets or international payment services with high fees.For example, when you send a payment using PayPal and the contractor wants to retrieve the money instantly, they’re charged a 1.5% fee (up to $15 USD per transfer). If you’re paying contractors who live abroad, the fees can be even higher. U.S. Bank reports that international wire transfers can carry outgoing fees of $50 or more — not including exchange-rate markups.If you’re not careful, contractors could lose hundreds per month just getting paid.Do: Make paperwork easy and compliant
Contractors hate chasing down 1099s or guessing if they’ve been misclassified.Here’s how to make it seamless:- Issue Form 1099-NEC to every qualifying U.S.-based contractor before January 31.
- Consider using a platform that automates year-end paperwork.
Don’t: Treat contractors like employees
If you control how and when contractors work, they may legally count as employees — which brings legal, tax, and compliance obligations. The IRS guidance makes it clear: even if someone wants to be a contractor, the classification must follow the law.That means:- No dictating exact hours or requiring them to work on your premises.
- No providing equipment, tools, or benefits.
- No assigning work the same way you would with employees.
- They are free from your control.
- They perform work outside your usual business.
- They run an independent business doing that work.
Do: Make it easy to work with you again
Independent contractors often choose who they work with again. You’ll want to be at the top of that list.That means:- Prompt, clear communication.
- Transparency around scope and timelines.
- No payment delays or extra hoops to jump through.
- Making taxes and year-end paperwork painless.
Frequently asked questions
How do I classify a worker as an independent contractor vs. self-employed?
The IRS defines independent contractors as workers who control how the work is done, are not on payroll, and typically offer their services to other companies. They are also considered self-employed for tax purposes, but the terms are used in slightly different contexts — “independent contractor” is more commonly used when discussing legal or classification frameworks, while “self-employed” is more general.Who is responsible for paying taxes — me or the contractor?
In the U.S., contractors are responsible for paying their own federal, state, and local taxes — including self-employment tax. As the client, you do not withhold any taxes, but you are responsible for issuing a 1099-NEC to any U.S.-based contractor paid over $600 in a calendar year.What if I accidentally misclassify someone?
Misclassification can result in penalties, back taxes, and legal action. According to the U.S. Department of Labor, this is a common compliance issue. To avoid it, follow both IRS and local guidelines (like California’s ABC test) or consult a legal expert.Is it better to pay contractors via PayPal, ACH, or another method?
ACH is often an affordable and reliable method for U.S.-based contractors. For international contractors, platforms like Plane offer low-fee transfers in local currencies. PayPal is convenient but often comes with high recipient-side fees.Do I need a contract for independent contractors?
Yes. Every independent contractor engagement should be governed by a written contract. It should cover scope, payment terms, IP ownership, confidentiality, and termination. This helps prevent disputes and supports proper classification.Related articles
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