2024 is officially upon us—which means the 1099-NEC filing season is right around the corner. Companies with independent contractors must file a 1099-NEC form—an IRS document to report non-employee compensation—for each worker by January 31st.
This deadline is increasingly important, especially for companies that rely on large independent contractor workforces, as the processes and administrative obligations relating to properly filing paperwork for a large 1099 workforce can quickly become a back-office nightmare.
For those companies, January is an administrative mess with HR, accounting, and finance teams sifting through stacks of W-9 forms and painstakingly confirming payment records.
We work almost exclusively with companies that deploy large contingent workforces, so we’ve heard first-hand the hassle and horror stories that January brings for companies that create, verify, and file 1099-NEC forms with traditional methods.
However, some finance and accounting professionals are streamlining the 1099 filing process with technology—minimizing errors and saving hours of back and forth with contractors. Specifically, automating as many manual 1099 processes as possible and consolidating information from your HR, ERP, and accounting systems. Here's everything you need to know to minimize the back-office chaos and best support your contingent workforce.
What is the 1099-NEC filing process?
Businesses that paid independent contractors over $600 in the past year must send 1099-NEC forms to these workers and the IRS by January 31. The IRS receives Copy A of the form, and the contractor gets Copy B. Companies complete 1099-NECs based on information from contractors’ W-9 forms, including each worker’s:
- Name
- Address
- Taxpayer identification number
- Payment total
Why January is an administrative burden for employers with contractors
Reporting personal and payment information for contractors sounds simple in theory. But in practice, the process is unwieldy. For many companies, 1099-NEC filing is filled with dozens of human touch points that needlessly extend the process. Accounting and HR team members will manually:
- Ask contractors to submit W-9 forms.
- Check W-9 forms and contractor invoices for errors.
- Create 1099-NEC forms by entering information from W-9 forms and contractor invoices.
- File and deliver 1099-NEC forms to the IRS and contractors.
Businesses also need to contend with contractors having different payment rates and methods when it’s time to report income on 1099-NEC forms.
Complex pay policies
Say you run an insurance claims business. After a hurricane hits a nearby region, you deploy 500 independent inspectors. Each inspector does the same type of work, but many have different pay rates and schedule preferences based on their experience and certifications. Some are paid $40 per hour weekly, while others are paid $50 per hour biweekly.
To accurately report payment figures on 1099-NEC forms for these contractors, your finance and accounting teams can’t just consider the number of hours worked. They’ll need to access various systems—such as Outlook, QuickBooks, and Bill.com—to pull up each contractor’s invoice details, payment rate cards, and personal information.
From there, the teams will manually input the payment totals for each contractor on a separate spreadsheet. Spreadsheets don’t auto populate, so your finance and accounting teams may miss critical information changes—like a contractor’s new banking account or a new hourly rate.
This time-intensive, error-prone workflow is the norm for companies working with hundreds and thousands of contractors.
Invoice disputes
Payment policy variations across contractors make 1099-NEC filing complex in the best circumstances. The process gets even more complicated when W-9 forms and invoices have incorrect information.
Imagine the prior hurricane insurance scenario. Someone on your accounting team manually inputs an incorrect payment rate for 100 contractors in your internal accounting system. As a result, the 1099-NEC forms for those workers end up including incorrect compensation figures, too.
Your contractors inevitably make mistakes when they submit data, too. Say twenty workers accidentally mistyped their TIN on their W-9 forms, and your team doesn’t catch these mistakes. Your company will then use those W-9s to file and deliver their 1099-NEC forms and unintentionally include the wrong TINs.
Thanks to mistakes like these, finance and accounting will spend hours:
- Double-checking invoices to make sure they’re using the correct figures when filing 1099-NEC forms
- Manually reviewing W-9 documents for errors
- Emailing and calling contractors to correct invoices and W-9 forms
- Resubmitting 1099-NEC forms with corrections
If your business depends on contractors, your finance and accounting teams won’t just email a worker here and there to ask for W-9 form corrections. There aren’t just two or three contractors with different rates. You have an entire workforce with different W-9s, invoices, and pay preferences.
Manually managing so many variables leads to wasted time and money. One business leader told us they have one employee who devotes half of her time in January just sending 1099-NEC forms. Another leader said they spend $30 to $40K annually for outsourced 1099-NEC filing.
These scenarios are all too common. According to CPA Jody Padar, businesses of all sizes struggle with inefficient 1099 filing workflows.
“You hear about a large firm acquisition and the obscene amount of hours needed to work in January because of poor processes,” says Padar. “There are firms out there who have standardized processes and cloud technology that can process 1099s in minutes, not hours.”
To learn more about how to avoid a chaotic and hectic filing season, check out our brand new report: Everything You Need To Know About 1099 Filing This Tax Season.
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