Contractor Payroll: How to Pay 1099 Workers
Compare 8 contractor payroll platforms on real cost at 5, 10, and 20 contractors, plus the new $2,000 1099-NEC threshold and what to collect before paying.
Contractor Payroll: Paying 1099 Workers
Eight platforms compared on real cost at 5, 10, and 20 contractors, the reporting threshold that changed this year, and the paperwork that has to exist before the first payment goes out
The phrase contractor payroll describes something that is not payroll, and the confusion costs businesses money in both directions. Paying a 1099 contractor involves no tax withholding, no employer FICA, and no quarterly returns. You send the gross amount on the invoice and the contractor handles their own tax.
That difference shows up in pricing. Contractor-only plans start at $6 per person per month against $29 to $80 base plus per-employee fees for real payroll, because the vendor is moving money and generating one form at year end rather than filing returns in every jurisdiction you operate in. A business paying fifteen contractors on an employee payroll plan is frequently paying several times what it needs to.
This comparison covers 8 platforms with published pricing modelled at 5, 10, and 20 contractors, the reporting threshold that changed for the first time since 1954, and the paperwork that has to exist before the first payment leaves your account.
Why contractor payroll is not actually payroll
Worth establishing first because it determines what you should be shopping for and what you should expect to pay.
| Function | W-2 employee payroll | 1099 contractor payment |
|---|---|---|
| Income tax withholding | Required, federal and state | None |
| FICA | Employer and employee each pay half | Contractor pays self-employment tax |
| Unemployment tax | Employer pays federal and state | None |
| Quarterly returns | Form 941 plus state returns | None |
| Year-end form | Form W-2 by January 31 | Form 1099-NEC by January 31 |
| Workers compensation | Required coverage | Generally not required |
| Typical platform cost | $29 to $80 base plus per employee | $6 to $49 per contractor |
Only two rows carry across: the year-end form and the payment itself. Everything a payroll platform charges for on the employee side, meaning the tax calculation, the deposits, and the quarterly filings, simply does not exist for a contractor.
The practical implication is that if your workforce is entirely contractors, you should be looking at contractor-only pricing rather than a payroll subscription. Twenty contractors on Square costs $120 a month. The same twenty people on a standard payroll plan at $49 base plus $6 each would be $169, and you would be paying for tax filing capability you never use.
Classification comes before everything else
The most expensive mistake in this category is not choosing the wrong platform. It is treating someone as a contractor who is legally an employee, and no platform makes that determination or carries that liability for you.
| IRS test factor | Points toward employee | Points toward contractor |
|---|---|---|
| Behavioral control | You direct how the work is done | You specify the result only |
| Tools and equipment | You supply them | The worker supplies their own |
| Profit or loss | Worker cannot lose money | Worker can realise a profit or loss |
| Other clients | Works only for you | Serves multiple clients |
| Written contract | None or an employment agreement | Contractor agreement defining scope |
| Benefits | Health, PTO, retirement provided | None provided |
| Permanency | Indefinite ongoing relationship | Project or fixed term |
No single factor is decisive, and the substance of the relationship governs regardless of what a contract says. A worker labelled a contractor who works set hours at your direction using your equipment with no other clients is an employee in the eyes of the IRS whatever the paperwork claims.
Several states apply stricter tests than the federal common law standard, most notably the ABC test, which presumes employment unless the employer proves all three of its conditions. Our guide to employee versus contractor classification covers the tests in detail.
What has to exist before the first payment
Four items, all of which are straightforward to obtain before work begins and progressively harder afterwards.
Businesses that treat this as a defined process rather than an afterthought spend markedly less time in January reconstructing who was paid what and whether a form is owed.
8 contractor payment platforms at a glance
Sorted by cost for contractor-only use. The last column matters if you also employ W-2 staff, because paying both through one system is usually simpler than running two.
| Provider | Best For | Contractor pricing | 1099-NEC filing | W-9 collection | Contractor portal | Also pays W-2 |
|---|---|---|---|---|---|---|
| Square Payroll | Contractor-only, no base fee | $6 per person paid | ||||
| QuickBooks | Existing QuickBooks users | $15 for up to 20 | ||||
| Gusto | Mixed W-2 and contractor teams | $35 + $6/contractor | ||||
| Patriot | Budget, one pool with employees | $37 + $5 per worker | ||||
| OnPay | Contractors alongside payroll | $49 + $6 per worker | ||||
| SurePayroll | Blended W-2 and 1099 | $29 + $7 per worker | ||||
| Deel | Contractors outside the US | $49 per contractor | ||||
| Rippling | Contractors inside a full HRIS | Quote |
The 8 platforms compared
The flat structure makes this the cheapest option at almost any volume. Twenty contractors costs $15 a month against $120 on Square, and QuickBooks is already cheaper from three contractors upward. If your books already live in QuickBooks Online, contractor payments post to the ledger without an export step.
The product handles W-9 collection through contractor self-setup and files 1099-NECs at year end. For a business paying more than a handful of contractors, this is difficult to beat on price alone.
The market floor and the simplest structure here. No base fee at all, $6 per contractor in months you actually pay them, unlimited payment runs, and 1099-NEC generation and filing included. Contractors set up their own accounts and enter their own bank details.
The billing model deserves particular attention for seasonal work. Because you pay only for people actually paid in a given month, a business using five contractors heavily in summer and none in winter pays nothing during the quiet months. Platforms billing per active seat charge regardless.
Gusto's Contractor Only plan is aimed at businesses with no W-2 employees yet, and the useful detail is that the base fee is charged only in months you actually pay someone. A business with irregular contractor usage is not paying $35 in quiet months.
The stronger argument is the upgrade path. If you expect to hire employees, starting on Gusto means contractor history, tax documents, and payment records are already in the system you will use for payroll, rather than requiring a migration later.
Patriot counts contractors in the same per-worker pool as employees rather than pricing them separately, which makes it economical for a blended roster and unremarkable for contractor-only use. At five employees and five contractors, the $37 plus $5 structure covers all ten workers for $87.
The Basic tier at $17 plus $4 is genuine self-service payroll where you handle tax filing, which for contractor payments matters less than it does for employees since there is little filing to do.
One plan, every feature, all 50 states included, and contractors counted in the same per-worker pool as employees. For a business with both worker types spread across states, that structure avoids both the multi-state surcharges and the separate contractor subscription.
As with Patriot, this is not the choice for a contractor-only roster, where the base fee buys tax filing capability you would never use.
The lowest base fee among full-service platforms at $29, with contractors counted alongside employees. Owned by Paychex and built deliberately for very small employers, including household employers.
The $7 per-worker rate is the highest among the budget platforms, so the economics invert as headcount grows. Cheapest at five total workers, more expensive than OnPay past roughly twenty.
Deel exists for cross-border work, and for a roster spread across countries it does something no US-focused platform does: locally compliant contract templates, payment in local currencies through fifteen or more payment methods, and compliance monitoring across 150 or more countries.
For a US-only contractor roster it is the wrong product at eight times the price of Square. The billing model compounds that: $49 runs every month a seat is active regardless of whether the contractor invoiced, so an occasional contractor costs the same as a full-time one.
Rippling handles contractors on the same unified employee record as employees, with device provisioning and app access flowing from the same onboarding action. For a company already running Rippling that adds contractors, this avoids a second system.
For anyone else it is the least accessible option here. Contractor module pricing is not published, the platform carries a base fee before any module, and implementation runs weeks rather than days.
What these platforms cost at 5, 10, and 20 contractors
Contractor pricing behaves differently from employee payroll pricing because the structures differ so widely: one platform has no base fee, one is flat to twenty people, and one charges per seat regardless of activity.
| Provider | 5 contractors | 10 contractors | 20 contractors | Annual at 20 | Notes |
|---|---|---|---|---|---|
| Square Payroll | $30 | $60 | $120 | $1,440 | No base fee, per person paid |
| QuickBooks | $15 | $15 | $15 | $180 | Flat to 20, then $2 each |
| Gusto Contractor | $65 | $95 | $155 | $1,860 | Base billed only in payment months |
| Patriot Full | $62 | $87 | $137 | $1,644 | Same pool as W-2 employees |
| OnPay | $79 | $109 | $169 | $2,028 | Same pool as W-2 employees |
| SurePayroll | $64 | $99 | $169 | $2,028 | Same pool as W-2 employees |
| Deel | $245 | $490 | $980 | $11,760 | Per active seat, global coverage |
Three patterns matter.
The cheapest option changes with contractor count. QuickBooks is cheaper from three contractors upward, because $15 flat covers up to twenty people while Square charges per person. At twenty contractors the gap is $120 against $15 a month, or $1,260 a year for the same function. Square only wins at one or two contractors, where its zero base fee beats a $15 minimum.
Blended platforms are not competitive for contractor-only rosters. Patriot, OnPay, and SurePayroll all count contractors in the employee pool, so you pay for tax filing capability that contractor payments never use. They earn their place when you have both worker types.
Deel is a different category, not an expensive version of the same one. At $980 a month for twenty contractors it costs sixty-five times what QuickBooks charges, and the reason is country coverage. For US-only work that premium buys nothing.
The reporting threshold changed for the first time since 1954
The most consequential recent development in this area, and one that a large share of published guidance still gets wrong.
| Payments made | Federal 1099-NEC threshold | Forms filed |
|---|---|---|
| During 2025 | $600 | Early 2026, old rule |
| During 2026 | $2,000 | Early 2027, new rule |
| 2027 onward | $2,000 indexed to inflation | Adjusted annually from a 2025 base |
The One Big Beautiful Bill Act, signed July 4, 2025, raised the federal reporting threshold for Form 1099-NEC and Form 1099-MISC from $600 to $2,000 for payments made after December 31, 2025. The $600 figure had stood since the 1954 tax code and was never indexed, which is why it had come to cover increasingly routine payments.
Two details prevent this from being as simple as it sounds. The threshold is per contractor per year in aggregate, so someone paid $700 in March and $1,400 in October has crossed $2,000 and still requires a form. And anti-abuse provisions prevent splitting payments across related entities purely to stay below the line.
One thing the threshold change does not alter: you should still collect a W-9 from every contractor regardless of expected payment volume. A contractor you expect to pay $800 may end up at $2,500, and the form is far easier to obtain at the start of the relationship than at year end.
Year-end filing and what it costs to get wrong
| Requirement | Detail |
|---|---|
| Deadline | January 31 for both the contractor copy and the IRS copy |
| Electronic filing | Required if filing 10 or more information returns in aggregate |
| Backup withholding | 24 percent if no valid taxpayer identification number is on file |
| Late penalty, within 30 days | Roughly $60 per form |
| Late penalty, after August 1 | Roughly $340 per form |
| Intentional disregard | Substantially higher, with no cap |
Penalty amounts are adjusted annually for inflation, and the deadline is genuinely tight: unlike some information returns, there is no extended deadline for filing 1099-NECs electronically.
Backup withholding is the provision most likely to surprise a small business. If a contractor has not supplied a valid taxpayer identification number, you are required to withhold 24 percent of the payment and remit it to the IRS. The One Big Beautiful Bill Act made that rate permanent. Explaining to a contractor after the fact that you are holding back a quarter of their invoice because they never returned a W-9 is a conversation worth avoiding by collecting the form up front.
Paying employees and contractors together
Most businesses in the 5 to 50 range end up with both worker types, and the question of whether to run one system or two comes up quickly.
The arithmetic decides it. A business with fifteen employees and two contractors should run one system, because the two contractors add $10 to $14 a month on the existing plan and a second subscription costs more than that in attention alone.
A business with two employees and fifteen contractors should consider splitting. Fifteen contractors on QuickBooks Contractor Payments costs $15 a month against roughly $90 if they sit in an employee payroll pool, and the year-end processes stay separate anyway because W-2s and 1099-NECs are different forms.
Which platform fits your situation
| If this is you | Start with | Because |
|---|---|---|
| Contractor-only, one or two people | Square Payroll | No base fee at all, and billed only in payment months |
| Contractor-only, three or more people | QuickBooks Contractor Payments | $15 flat covers up to 20 contractors |
| Seasonal or irregular contractor usage | Square or Gusto | Both bill only in months a contractor is actually paid |
| Books already in QuickBooks Online | QuickBooks Contractor Payments | Posts to the ledger without an export step |
| Contractors now, employees soon | Gusto Contractor Only | Clean upgrade path without migrating records |
| Blended team, cost-sensitive | Patriot | Lowest per-worker rate covering both types |
| Blended team across several states | OnPay | All states included with contractors in the same pool |
| Contractors outside the United States | Deel | Country coverage no US-focused platform matches |
| Already running Rippling | Rippling contractor module | Avoids a second system, though pricing is quote-only |
Two of those rows route away from the obvious answer deliberately. A business with fifteen contractors should not default to the payroll platform it already knows, because contractor-only pricing is a fraction of the cost. And a business with contractors abroad should not try to make a US platform work, because the compliance exposure is not worth the saving.
Before you choose
FirstHR does not pay contractors, process payroll, or file 1099-NEC forms. Every platform above does something we do not, and if moving money to contractors is the problem in front of you, one of them is the answer.
The reason this section exists is a pattern specific to contractor work. Payment platforms handle the payment and generate the form, and they generally start from the assumption that a W-9 exists, a contract was signed, and someone decided this person is a contractor rather than an employee. In practice those three things are exactly what goes wrong: the W-9 arrives in January or not at all, the agreement was an email thread, and nobody wrote down why the classification was made.
That layer is what we handle: onboarding workflows that collect documents before work starts, e-signature on contractor agreements with an audit trail of what was signed and when, worker profiles holding the classification reasoning alongside the paperwork, and document management for US teams of 5 to 50 at a flat $98 to $198 per month. It sits alongside whichever payment platform you choose rather than replacing it. If the recurring January problem is reconstructing who was paid what and whether the paperwork ever came back, that is a document collection failure rather than a payment failure, and it is the gap we built for.
Frequently Asked Questions
Do I have to run payroll for 1099 contractors?
No. Payroll means withholding and remitting taxes, and none of that applies to a contractor. You pay the gross invoice amount and they handle their own self-employment tax. What people call contractor payroll is really contractor payment: moving money on a schedule and issuing Form 1099-NEC at year end.
What is the 1099-NEC threshold for 2026?
$2,000 for payments made after December 31, 2025, raised from $600 by the One Big Beautiful Bill Act. Payments made during 2025 still use $600. The threshold is per contractor per year in aggregate, so $700 in March plus $1,400 in October crosses the line. It indexes to inflation from 2027.
Do state 1099 thresholds match the new federal $2,000?
Not everywhere. Mississippi and Wisconsin kept $600, and states including Arkansas and Missouri use thresholds matching neither figure. A contractor paid $1,500 in one of those states may require a state return even though no federal form is due. Check each state separately if you pay contractors in more than one.
What is a W-9 and when do I need to collect it?
The form on which a contractor supplies their legal name, tax classification, and taxpayer identification number. You keep it rather than filing it, and use it to prepare the 1099-NEC. Collect it before the first payment: chasing a W-9 in January from someone who finished work in March is considerably harder.
What happens if a contractor will not provide a W-9?
You must apply backup withholding at 24 percent and remit it to the IRS, a rate the One Big Beautiful Bill Act made permanent. The same applies if the IRS notifies you that a supplied taxpayer identification number is incorrect. It is an unpleasant conversation to have after work is complete.
How much does contractor payroll software cost?
Square is $6 per person paid with no base fee. QuickBooks is $15 monthly for up to 20 contractors then $2 each. Gusto Contractor Only is $35 plus $6, billed only in payment months. Deel is $49 per contractor per active seat. Blended platforms count contractors in the same per-worker pool as employees.
What is the difference between an employee and an independent contractor?
The IRS weighs behavioral control, financial control, and the type of relationship. Directing how work is done, supplying tools, providing benefits, and an indefinite term all point toward employment. No single factor decides it, and substance governs over what a contract says. Several states apply stricter tests than the federal standard.
What are the penalties for misclassifying a worker as a contractor?
Back employer FICA, unwithheld income tax, federal and state unemployment contributions, plus interest and penalties, with higher amounts for intentional misclassification. Beyond tax, exposure includes unpaid overtime under the Fair Labor Standards Act and workers compensation for injuries that would otherwise have been covered.
Can I pay contractors through the same system as employees?
Yes, and for a blended workforce it is usually simpler. Patriot, OnPay, SurePayroll, Gusto, and QuickBooks all handle both. The consideration is that these platforms typically count contractors at the full per-worker rate, so a business with two employees and fifteen contractors will usually find contractor-only pricing cheaper.
When are 1099-NEC forms due?
January 31 for both the contractor copy and the IRS copy, with no extended deadline for electronic filing. Businesses filing ten or more information returns in aggregate must file electronically. Late penalties run from roughly $60 per form within 30 days to around $340 after August 1.
Do contractors get pay stubs or access to their payment history?
There is no legal pay stub requirement for contractors since no deductions are itemised, but most platforms provide a self-service portal where the contractor sets up their account, enters bank details, completes their W-9, and views payment history and year-end forms.
What paperwork should exist before the first contractor payment?
A completed W-9, a signed contractor agreement covering scope and intellectual property, a documented classification decision, and payment details captured through a portal rather than email. All four are easier to obtain before work starts than after it finishes.