What's covered in this guide?
Contractor vs. employee — the IRS test
Workforce Payroll supports 1099 contractors through a dedicated 1099 payroll file, separate from your W-2 employee payroll. Contractor pay runs don't withhold or remit taxes; instead, you collect a W-9, pay the gross amount each pay period, and produce 1099-NEC packets at year end.
A 1099 independent contractor is a worker you pay for a service who is not your employee. The IRS uses a common-law test that looks at behavioral control, financial control, and the type of relationship. If the worker meets the IRS criteria for an employee, they must be paid as a W-2 employee — not a 1099 contractor.
For the full IRS guidance, see Independent Contractor (Self-Employed) or Employee? on irs.gov. Misclassification carries real penalties. Workforce doesn't enforce classification; that judgment is yours. Once you've determined someone is a contractor, the rest of this article covers how to pay them through Workforce.
The 1099 payroll file
In Workforce, a payroll company file is the company-level container that owns pay groups, pay runs, tax profiles, and bank details. Contractors are run from a separate 1099 company file, alongside your W-2 file — not inside it.
To create a 1099 payroll file:
Go to Payroll > Settings.
Click Add Payroll File and open the dropdown.
Choose Add 1099 Integration (the default Add Payroll File option creates a W-2 file).
Once the 1099 file exists, set up at least one pay group on it — that's the schedule contractor pay runs are generated against, the same way W-2 pay runs are generated from W-2 pay groups.
Setting up a contractor
Mark the worker as a contractor
On the worker's profile, in the payroll setup, mark them as a 1099 contractor. Internally Workforce records this on the user's payroll setting, and the user only counts as a contractor while that flag is set.
Complete the contractor profile
Each contractor has a contractor profile with the data Workforce needs for 1099 reporting. The profile is required and includes:
Entity name — the legal name on the contractor's W-9 (their own name for sole proprietors, the business name otherwise).
TIN type and TIN — SSN, ITIN, or EIN. The TIN must be exactly 9 digits and Workforce validates the format for SSNs and ITINs.
W-9 attachment — upload the contractor's signed W-9 (PDF, JPG, or PNG) if you'd like a paper copy stored.
Electronic 1099 opt-in — opt the contractor in to receiving their 1099-NEC electronically only.
Note: Until the first three fields above are filled in (entity name, TIN type and TIN, and W-9 attachment), the contractor profile shows as incomplete and the pay run will warn you with Incomplete contractor profile. A pay stub with no TIN at all blocks posting with the Contractor missing TIN error. The electronic 1099 opt-in is optional — contractors who haven't opted in will receive a paper 1099-NEC at year end.
Bank account
Add the contractor's bank account if you want to pay them via direct deposit (ACH). The bank details panel on the profile is the only payroll-setup section the contractor profile uses — autopaid earnings, deductions, employer contributions, time off, tax exemptions, and garnishments are all not available for contractors and don't appear on their profile.
Running a contractor pay run
Contractor pay runs live in Payroll > Run Payroll, the same as W-2 pay runs. Each pay run is tied to a single payroll file, so a contractor pay run is a pay run on the 1099 file. The list of pay runs shows the payroll file each one belongs to.
To run contractor payroll:
Open the draft pay run on the 1099 payroll file.
Add contractors via + Add Contractor on the pay run, or let Workforce create pay stubs from imported timesheets.
Open each pay stub and review the earnings lines (rate × units, plus any allowances). There are no tax, deduction, or contribution lines to review — those don't exist on contractor pay stubs.
Resolve any errors flagged on the pay run (for example Contractor missing TIN).
Post the pay run.
Contractors can be paid by direct deposit (ACH), check, or as a manual payment, just like employees.
Note: Workforce won't let you mix worker types on a single pay run. Adding a W-2 employee to a contractor pay run produces an Employee on contractor pay run error; adding a contractor to a W-2 pay run produces Contractor on employee pay run. Either move the person to the right pay run, or correct their classification on their profile.
What's different from a W-2 pay run
A contractor pay run looks similar on the surface but skips most of what a W-2 pay run does. Concretely:
No tax withholding — federal income tax, FICA (Social Security and Medicare), and state and local income taxes are not withheld from contractor payments.
No employer taxes — no employer FICA match, no FUTA, no SUTA on contractor wages.
No tax filings — Workforce does not file 941, 940, state withholding, or unemployment returns for contractor wages.
No W-4 — contractors don't complete a federal W-4 or any state withholding certificate. Withholding-form blockers don't apply to contractors.
Earnings only — a contractor pay stub has earnings lines. It has no deductions, employer contributions, reimbursements, time off accruals, garnishments, or tax lines.
No tax-profile setup — the 1099 payroll file does not have federal or state tax profiles, so company-level "Missing tax profile" blockers don't apply.
Year-end form — contractors receive a 1099-NEC, not a W-2.
Year-end 1099-NEC
At the end of the calendar year, Workforce produces a 1099-NEC for each contractor on the 1099 payroll file based on their year-to-date contractor earnings.
1099-NEC documents are managed under Payroll > Tax Filings > Tax Packets, on the 1099 payroll file. From there you can:
Create a tax packet for the year and attach the generated forms.
Record adjustments where needed.
Distribute electronically to contractors who have Electronic 1099 opt-in set on their contractor profile, or print and mail to those who haven't.
$600 reporting threshold
By default, Workforce applies the IRS reporting threshold: contractors who earned less than $600 in the calendar year are excluded from 1099-NEC generation. This matches the standard IRS rule for non-employee compensation.
If your organization needs to generate 1099-NEC forms for contractors who earned under $600, an admin can turn off the threshold:
Go to Payroll > Settings on the 1099 payroll file.
Open Advanced Settings.
Under 1099-NEC settings, uncheck Apply 1099-NEC reporting threshold.
Save. Workforce will now include all contractors in 1099-NEC reporting regardless of earnings amount.
Tip: Make sure every contractor has a complete profile (W-9, TIN, TIN type, entity name) before year end. Catching a missing or invalid TIN at year end means corrected 1099s and possible IRS penalties.
Paying the same person as both W-2 and 1099
Workforce treats W-2 and 1099 status as a property of a single user record. Once a worker has been paid as a contractor, they cannot also be paid as an employee on the same record — and the reverse is also true.
If someone genuinely needs to be paid both ways (for example, an employee who also operates a separate business and invoices you for distinct services), create a separate user profile for the second relationship and set its classification accordingly:
A W-2 profile on your W-2 payroll file with normal earnings, taxes, and W-2 reporting.
A 1099 profile on your 1099 payroll file with a contractor profile, W-9, and 1099-NEC reporting.
Be sure the duties on each side are genuinely separable. The IRS criteria above still apply — you can't recharacterize regular employment as 1099 work just by creating a second profile.