How Do 1099 Contractors Get Paid? A Contractor & W-2 Payments Guide

Independent contractors, also known as 1099 workers, are individuals who provide services to a business and are responsible for their own taxes and benefits. They are not the same as employees/ W2 workers. 

Businesses often rely on independent contractors, especially when expanding their company to a foreign region. This is because it allows them to enjoy increased flexibility in the sense they can staff up or down according to their business growth and needs. 

Now, getting to the most important question: How do 1099 contractors get paid?

Generally, under the guidelines of the IRS, as an employer, you do not have to withhold or pay any taxes to payments made to such workers as you would for an employee. But there are certain other obligations that you must fulfill.

Let’s determine what these duties are and how the entire process of paying independent contractors works.

Understanding 1099 Workers vs. W-2 Employees

Before we answer your questions about 1099 pay, let’s start with the basic definitions. Internation businesses often face numerous legal challenges, such as not maintaining the right employees vs contractors distinction. 

What is a 1099 worker?

According to the IRS, a 1099 worker is an individual who provides services for an employer. However, the employer can only control or direct the result of the work, not what will be done or how it will be done. 

All independent contractors are self-employed individuals. This means that their earnings are subject to self-employment tax. When hiring independent contractors for your employees, you must report any payments you make to them on Form 1099-NEC, Nonemployee Compensation.

Businesses use various payment structures for independent contractors. These include project fees, retainers, payments based on time and materials, and more.

What is a W2 employee?

If you can control what will be done and how it will be done for anyone who performs services for you, then that person is considered an employee.

Employers must deposit and report three main types of federal employment taxes. They are namely,

• Federal income tax: All employers must withhold federal income tax from their employees’ wages. The Form W4, Employee’s Withholding Certificate, determines the exact amount of this tax.
• Social Security and Medicare taxes: Employers are responsible for withholding Social Security and Medicare taxes from their employee's wages and paying their share of these taxes. The rates for both taxes vary.
• Additional Medicare tax: Employers who process wages exceeding $200,000 for an employee must withhold an additional 0.9% Medicare tax from the salary.

Employers report and pay federal unemployment tax (FUTA) from their funds. Unlike federal employment taxes, FUTA is not required by employees.

Unlike independent contractors, employees are paid according to standardized payment schedules. These schedules can be weekly, biweekly, semi-monthly, four-weekly, or monthly. This approach makes cash flow more predictable for employers and helps calculate overtime, bonuses, and taxes.

So, if you’re thinking that people paid through 1099s are considered employees, the answer is no.

Now, let’s first understand how do independent contractors get paid.

How Do 1099 Workers Get Paid?

Independent contractors and 1099 workers send their employers invoices, which are simply billing request documents, usually after they have completed their work on a project. 

An independent contractor can invoice their clients based on various factors, such as the preferred method of payment, the existing payroll service/software within the organization, and so on.

When offering 1099 compensation, you need to decide on a contractor payment term. This should be communicated to your contractor and highlighted in the written contract. Some of the most common types of payment schedule arrangements are,

You can also use various ways to disburse payments (pay stub for 1099 employee) to your contractors. A few examples include,

Now, let’s see how to pay W2 employees.

How Do W2 Employees Get Paid?

Payroll is the process through which companies pay their employees. 

Suppose you’re thinking about how much does a W2 employee cost, it includes various important tasks, such as tracking hours worked, calculating the employee’s pay (W2 pay rate), and sending the amount through direct deposit to the individual’s bank account or check.

In addition to this, companies must perform other accounting tasks. These include recording payrolls, tax withheld, sick leave, overtime, and vacation pay.

Therefore, most businesses prefer to use software solutions to manage their employees’ payroll. Employees simply input their hours through an API, and their salary is processed and deposited into their bank accounts.

Tax Considerations for 1099 Contractors and W2 Employees

Moving on, now that you know the main differences in the payment methods for 1099 vs W2 workers, let’s understand their tax obligations. 

Independent contractors are required to file an annual income tax return and pay estimated taxes quarterly. They must pay SE (self-employment) tax, which is the equivalent of Social Security and Medicare taxes withheld from an employee’s wages. It is calculated by determining the net profit or net loss from their businesses.

If an independent contractor has a net income exceeding $400, they must file an income tax return. The main document used for this purpose is the Form 1040-ES, Estimated Tax for Individuals. 

When paying employees, federal income tax and Social Security and Medicare taxes must be withheld from their wages.

The current rate for Social Security taxes is set at 6.2% for employees and 6.3% for employers. Furthermore, the Social Security tax also has a wage base limit. It refers to the maximum wage subject to that tax in a particular year. As of 2025, the wage base limit is $176,100.

The Medicare tax rate is currently set at 1.45% for the employer and 1.45% for the employee.

Comparing 1099 vs W2 Payment Methods 

The payment schedule for independent contractors usually depends on the terms of the contract agreement. For example, if they are hired for short-term projects, you must make payments due upon completion. 

Similarly, other contractors might demand deposits throughout the project lifecycle. For example, 50% upon contract signing and 50% after project completion.

W2 employees, on the other hand, are paid consistently. The employer usually determines the schedule, which can be bi-weekly or monthly.

Compliance and Misclassification Risks

Whether you are hiring independent contractors or W2 employees, it is very important to maintain the proper classification. Misclassification not only denies employees their right to minimum wage, overtime pay, and other protections and creates tax burdens. 

The Fair Labor Standards Act defines an employee as a worker who is economically dependent on their employer. In contrast, an independent contractor is an individual in business for themselves. 

You must adhere to all these guidelines when hiring independent contractors. In the event of misclassification, you will be liable for all employment tax for that individual. 

Furthermore, the IRS also allows for an optional program through which you can reclassify the worker as an employee for future tax periods, with partial relief from federal employment taxes. It is known as the Voluntary Classification Settlement Program.

Best Practices for Managing Payments

Here are a few tips and tricks on how you, as an employer/business owner, can better manage 1099 vs W2 employee payments.

• Leverage technology like contractor payroll services to manage international contractor payments efficiently.
• Review the local labor laws to understand the proper distinction between employees and independent contractors.
• Always ensure you pay your 1099 workers promptly and fairly.
• Use time-tracking tools to record the hours worked clearly, thereby promoting transparency and accountability.
• Regular check-ins and feedback can go a long way in monitoring progress and guiding contractors and employees.

How Skuad can Help you Hire, Pay, and Manage your Global Workforce

Skuad’s unified platform enables you to hire independent contractors from over 160 countries easily and compliantly. With us by your side, you no longer need to worry about non-compliance issues related to tax deductions, form submissions, and more. 

We automate the entire contractor invoicing and payment process. This includes expense management, benefits and time-off management, regulatory compliance, and more.

But our services are not just limited to hiring contractors alone. With Skuad’s global EOR solution, you can easily hire and pay international employees!

You can create and send localized contracts within minutes, collect necessary employment information, make payments using multiple payment methods, and more!

So, book a demo with us today, and expand your organization’s workforce seamlessly.

FAQs

How often do 1099 employees get paid?

1099 workers are usually paid hourly, weekly, biweekly, or monthly.

Is it better to be paid as a 1099 or W-2?

Unlike W2 employees, 1099 workers must pay Social Security and Medicare taxes. Furthermore, they are not eligible for employee benefits, like retirement or insurance plans.

Does a 1099 employee pay more taxes?

Yes, a 1099 worker usually pays more taxes since they are required to cover the entirety of the SE tax. But, they can lower this burden by deducting business expenses.

What to do if you are misclassified as 1099?

Workers who believe that they have been wrongly misclassified as a 1099 contractor can use Form 8919, Uncollected Social Security, and Medicare Taxes on Wages. It is an important document that helps to determine the employee’s share of Social Security and Medicare taxes due on their compensation.