How to Onboard a 1099 Employee | US Business Guide

The way you bring a 1099 contractor into your business is quite different from hiring a traditional employee. Your relationship with an independent contractor is built on independence and mutual accountability.

Companies that get this stage right enjoy productive partnerships, while missteps can create confusion or compliance risks. An effective approach to onboarding independent contractors helps establish expectations and provide the resources the contractor needs to accomplish their role.

Below, we explain how to onboard a 1099 employee efficiently. We cover the required documentation, responsibilities, payment details and more. We'll also talk about BatchTransfer, which can help your team send international business payments at low cost.

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What Is a 1099 Employee?

A 1099 employee is not technically an employee at all, but an independent contractor. The term comes from IRS Form 1099-NEC, which businesses use to report payments made to non-employees.¹

Contractors are self-employed professionals who manage their own taxes and business expenses. They control how and when they work. Many of them balance multiple clients at once.

Companies hire independent contractors to benefit from specialized talent without the obligations tied to payroll taxes and long-term contracts. Meanwhile, contractors enjoy greater autonomy and the ability to set rates, choose projects and define work practices.

How to Onboard a 1099 Employee: A Step-by-Step Process

The rules for hiring independent contractors may not be as extensive as those for full-time employees. However, you still need to follow certain steps for onboarding independent contractors.

Step 1: Collect 1099 Paperwork for New Hire

First, you need to sort out the documentation. Contractors are not on payroll, so you do not withhold income tax or Social Security contributions.

Instead, you report what you pay them using IRS Form 1099-NEC. To make this possible, you need accurate tax records from day one.

For U.S.-based contractors, request a completed W-9 form. The document provides the contractor’s name, business classification, address and taxpayer identification number (TIN).²

Keep the W-9 in your records. While it’s not filed with the IRS, it’s important for issuing a 1099-NEC or 1099-MISC at year’s end.

If you are working with someone outside of the U.S., ask for a W-8 BEN form instead. The form verifies that the contractor is a foreign individual and outlines their eligibility for certain tax treaty benefits.³

Besides tax documents, you also need to request copies of professional licences or certifications if the contractor’s work requires them. This way, you establish accountability right from the start.

Step 2: Secure Agreements to Protect Your Business

After handling tax paperwork, the next priority should be to protect your company’s interests through agreements. Contractors are independent, but that does not mean they should have unrestricted access to your information or client relationships.

Start with a contractor agreement that defines the scope of work. It should specify the contractor’s responsibilities, deliverables, timelines, payment details and termination terms.

If the contractor is working on projects with sensitive information, add a confidentiality agreement. It keeps the contractor from sharing trade secrets or client data with outside parties.

You can also opt for a non-compete agreement, though this requires care. Independent contractors generally retain the right to work with multiple clients, including potential competitors. However, you can reasonably request that they do not solicit your clients or use knowledge gained from your company to establish a competing business.

Step 3: Clarify Compensation

Contractors operate like businesses, which means payment expectations can vary. Some request deposits before beginning work, while others may bill in installments tied to project timelines. Either way, you should have the pricing conversation upfront and confirm it in writing.

Include details like hourly rates or flat fees, payment methods and invoicing schedules. If health insurance or other benefits come up in discussion, clarify that independent contractors are responsible for their own coverage.

Step 4: Specify Project Requirements

After you’ve finalized the agreements, you can then explain the project’s requirements and the contractor’s responsibilities. Include project scope, deadlines and reporting requirements in a written document to prevent scope creep and foster accountability on both sides.

Step 5: Provide Necessary Tools

Independent contractors cannot complete work without access to certain systems. If that’s the case with your project, provide logins for project management software or other databases they’ll need.

Many tools offer access controls, so you can restrict certain information from the contractors. Also, explain the context in which you use these tools in your organization so that the contractor can be on the same page. If needed, you can also offer them a short training module or tutorial.

Step 6: Assign a Point of Contact

The contractor should know who to approach for guidance. A single point of contact prevents communication gaps and helps contractors resolve questions quickly.

Step 7: Deboard

At the conclusion of a project, you’ll need a structured deboarding process. Here’s how to do it right:

• Conduct a final review of the deliverables to confirm that everything has been submitted according to the contractor agreement.
• Compensate the contractor for their final work based on the payment details from the onboarding stages.
• Revoke their access to internal systems to prevent accidental logins or security issues. If the contractor had access to proprietary information, confirm that they have deleted or returned any sensitive files.
• Gather their feedback on the project.
• End the relationship on a positive note and keep their details on file for potential future work.

Frequently Asked Questions

Do independent contractors need to complete an I-9 form?

Independent contractors don’t have to complete an I-9 form. Instead, contractors provide a W-9 (or W-8 BEN for foreign workers) to verify tax information, but not employment eligibility documentation.

Can 1099 contractors receive company benefits like health insurance?

Independent contractors are not entitled to benefits like their full-time counterparts. However, companies may offer optional perks like transportation.

Do contractors need access to all company systems?

They only need access to the tools and databases they require for their project. You can further use access controls to limit their access to information they don’t need.

Can you set fixed working hours for a contractor?

Contractors control their own schedules. While you can request deadlines, you cannot dictate working hours in the way you would with employees.