Hired a contractor? Do this now!

Tula Tu - the darling of the Oregon Zoo 

Scenario 1: You are an Oregon Zoo member and they switch their member check-in management to a new portal. They ask you to download a new app and create an account, but you don’t do it. Every time you take your kids to the Zoo they remind you to do it by giving you a card with a QR code on it, but they keep letting you check in by manually overriding the system and letting you in.

This is TOTALLY hypothetical and definitely did NOT happen to me.

Scenario 2: You are an Oregon Zoo member and they switch their member check-in management to a new portal. They ask you to download a new app and create an account, and if you don’t do it, they don’t let you in. So you stand off to the side of the check-in line with kids getting impatient, download the app (slowly with poor cell signal), create an account and awkwardly merge back into the check-in line where you finally get into the Zoo.

Vulnerable honesty moment: I still haven’t made my new member account. I keep forgetting.

Both of these scenarios could be avoided by me reading my personal emails thoroughly and following the steps they surely sent me before going to the Zoo with my kids.

But for real, how many small admin tasks, payment methods, online accounts are each of us juggling at any given time? Too many.

The point of the above is in one scenario (the real one) the Zoo permitted me to bypass their system, and in the other scenario (the one they should probably do) they forced me to follow their process in order to enter the facility so I had to follow their system.

And we finally get to you and your contractors – the most important step you can take in setting your business up to track contractor payments and being prepared to file any necessary 1099s your business is obligated to is this: Do not pay your contractor until they give you the paperwork you need. (More on 1099s at the end)

If they can’t “enter the Zoo” (ie - get paid) until they comply, they’ll be much more motivated to do the small admin tasks you need them to do. If you let them bypass your system (ie – paying them and saying “I’ll get your business info later”), chances are you’ll end up in full panic mode in January trying to figure out how much you paid them, and tracking down their Tax ID number.

So, when you’re ready to hire a contractor, do this BEFORE you pay them:

1. Ask them for a completed W9.

A W9 is an IRS form that provides you with the business information you need about the contractor. The latest version is always available on the IRS website. Just google IRS W9 and download it directly from their website. If this contractor often works for small businesses, they probably already have one filled out, signed, and ready to send you. Save this for reference next January.

2. Set up their vendor profile in QuickBooks

When you set up their profile in QuickBooks, use the business information from their W9: their business name, address, and Tax ID (or Social Security) number. Scroll to the bottom of the vendor profile and check the box that says “Track for 1099s”. This doesn’t mean you must send them a 1099, just that QuickBooks will flag them so you can make that decision in January when you have all the pieces of the “Do I have to send a 1099?” puzzle finalized, including amount you paid them, how you paid them, what you paid them to do, and their business type.

3. Pay them using a consistent method

Most folks are happy to be paid however it is most convenient, because it’s usually the fastest and most reliable way to be paid. Especially if you work with several contractors, choosing one method of payment: bank transfer, PayPal, QuickBooks, etc makes your life much simpler.

Why do I have to do all this?

Businesses are required to report to the IRS every January the amount of money they paid to contractors (non-employees) for services provided in the prior year. The form to do this is a 1099 that the business sends to the contractor, the IRS, and sometimes the state the contractor is based in. Failure to do so can result in fines from the IRS and the state.

There are several factors that determine whether or not a business needs to submit 1099s, but that’s a topic for another day. For now, all you need know is: when you hire a contractor, do not pay them until they give you a W9.

And come visit Tula Tu in Portland. 😊

Are you a nutritionist, coach, or personal trainer wanting help getting your business finances better organized? Let’s talk!