Independent Contractors

Goals and takeaways

Explore key differences between independent contractors and employees in system workflows
Consider suggestions for organizing onboarding, payments, and reporting for contractors
Reduce confusion by thoughtfully separating worker types in product design

What is an independent contractor?

The IRS defines an independent contractor as a worker for whom the payer controls only the result of the work, not how it is performed. IRS definition

Because contractor definitions can vary across jurisdictions, it's helpful for payroll systems to visibly distinguish contractors from employees. This can make recordkeeping and reporting more transparent and easier for employers to manage.

Key distinctions: Employees vs. contractors

Category	Employee	Independent Contractor
Legal protections	Covered by labor laws	Not covered by employment law
Hiring documentation	Requires onboarding, Form W-4, Form I-9	Often begins with a contract and Form W-9
Tax reporting	Reported on Form W-2	Reported on Form 1099-NEC (if $600+)
UI/SUI reporting	Included in unemployment insurance reporting	Typically not reported for UI/SUI
Compensation format	Hourly or salaried, ongoing	May be project-based, milestone, or flat-fee

These distinctions can help guide system decisions when structuring onboarding, payments, and reporting.

Platform setup and workflow suggestions

Here are a few ideas to help build clearer separation between employees and contractors in product workflows:

Terminology and interface

Consider avoiding "employee"-specific terms such as "paystub" or "employment"
Use language like "contractor payment" or "remittance summary"

Identification and separation

Use different ID formats or numbering conventions for contractors
Separate views or filters for employee vs. contractor records in navigation and exports

Onboarding and documentation

Provide a dedicated contractor onboarding flow that requests:
Name, address, and TIN (via Form W-9)
Optional: project details or contract name
Consider limiting employee-specific fields in contractor onboarding

Payment setup

Support flexible payment types such as per-project, milestone, or flat-rate payments
Let users define hourly rates if applicable, but avoid defaulting to hourly as the standard

Benefits eligibility

Avoid surfacing employee-only benefit features to contractor profiles (e.g., PTO accrual, benefits enrollment)

Payroll grouping

If contractors and employees are paid in the same payroll run:
Group contractors separately in review screens or exports
Flag them distinctly in reports or file outputs

Summary

Organizing contractor and employee workflows separately can help reduce confusion and make recordkeeping easier for employers. While classification decisions are outside the scope of system design, thoughtful separation in terminology, setup, and process can help support clarity.

This document offers product design suggestions only and does not determine or imply legal worker classification. Employers and partners should rely on relevant IRS, state, or legal guidance for classification decisions.