Avoid Missteps: The Right Way to Handle Independent Contractor Documents

The Right Way to Handle Independent Contractor Documents
The Right Way to Handle Independent Contractor Documents

Working with freelancers, consultants and gig workers can offer your business flexibility and specialized skills — but only if you handle the relationship correctly from the start. Misclassifying a worker as an independent contractor instead of an employee can lead to costly fines, back taxes and legal trouble.

To prevent these risks, it's critical to have the right independent contractor documents in place. The IRS and other government agencies closely scrutinize these relationships, and the proper paperwork can help validate independent contractor status.

Here's a quick overview of the key documentation you need when engaging contract workers.

To reduce your risk of misclassification, steer clear of these common pitfalls:

1. Form W-9

Before any work begins, collect a Form W-9 from your contractor. This form provides the contractor's name, address and taxpayer identification number (TIN), which are required for year-end 1099 filings. Without a completed W-9, you can't legally issue a Form 1099-NEC.

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2. Independent Contractor Agreement

A signed independent contractor agreement is essential. This legal document confirms the contractor is not an employee and outlines the scope of the work. Be sure to include:

  • Payment terms and timeline
  • Duration of the project or a defined end date
  • Confirmation that the contractor provides their own tools and covers their own expenses
  • Freedom to work with other clients
  • Liability, confidentiality, and (if needed) noncompete clauses

Depending on the nature of the work, you may also want to require proof of liability and/or workers' compensation insurance.

3. Invoice for Services

To further support the contractor classification, request an invoice upon project completion. The invoice should reflect a project-based fee — not an hourly rate — and should be submitted from the contractor's business entity. Process payments through your accounts payable system, treating the contractor as a vendor.

4. Form 1099-NEC

At year-end, file Form 1099-NEC for contractors that meet IRS guidelines. This form reports nonemployee compensation to the IRS and the contractor.

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Prevent Costly Mistakes with Information and Action

Getting the right paperwork in place isn't just a formality — it's a safeguard. Misclassification remains a serious compliance issue. Learn more about the risks and consequences in our article on employee misclassification.

Updated: 07/18/2025

Proper Setup with Independent Contractors

Use this handy checklist to make sure you're covered from day one.

Before Work Begins:

  • Collect a signed W-9 form
  • Execute an independent contractor agreement
  • Verify business name and payment method
  • Request proof of insurance (if applicable)

After Work Is Completed:

  • Receive project-based invoice
  • File Form 1099-NEC

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