Adding & Classifying Employees as Contractors (1099)

Updated

7shifts Payroll allows you to streamline payments for both W-2 Employees and 1099 Contractors in one place. You can easily classify your staff as a contractor within their 7shifts profile and send them an onboarding package with the necessary tax documents to ensure everything is ready for year-end filing. This article overviews how Admin and Manager users can add new contractors or classify existing employees as contractors in 7shifts.

Things to know

  • This feature is for 7shifts Payroll customers who pay contractors regularly (it is not intended for one-time services like a handyman or DJ).

  • While taxes are not withheld for contractors, 7shifts handles 1099 filing at year-end.

  • 7shifts Payroll currently only supports individual contractors with an ITIN. Business contractors using an EIN are not supported.

  • 7shifts Payroll, can only deposit payroll funds into bank accounts located in the United States. Employees and contractors must have a US-based bank account to receive payments through 7shifts Payroll.

Add a New Employee as a Contractor

      1. Login to the 7shifts web app as an Admin or Manager with permissions.
      2. Navigate to: Team > Employees > +Add Employee.
      3. Fill in employee details and enable the 'Send onboarding package'.
      4. Click 'Add and onboard employee'.
        Screenshot 2024-09-20 at 10.00.34 AM.png
      5. Update the Payroll classification to 'Contractor' to send a contractor-specific onboarding package.
        Screenshot 2024-09-20 at 10.01.43 AM (1).png
      6. That's it! This employee is now classified as a Contractor in Payroll. The employee is responsible for completing their onboarding package to become payroll ready. 

Classify an Existing Employee as a Contractor

The process for changing an employee’s payroll classification from W-2 Employee to 1099 Contractor (or vice-versa) depends on whether they’ve previously been paid through 7shifts Payroll under a different classification. Use the drop downs to reveal the steps for each scenario. 

Scenario 1: Worker has not been paid previously via 7shifts Payroll
      1. Log in to the 7shifts web app as an Admin or Manager with the necessary permissions.
      2. Go to: Team > Employees > Open the employee's profile > Employment > Employment History > Edit Employment Details.
        Screenshot 2024-09-20 at 3.36.49 PM.png
      3. Select Contractor (1099) and Save!
        Edit Employment.png

      4. Finally, send an onboarding package:

        • Send the employee a new onboarding package with the updated classification to collect the appropriate tax documents and get them payroll-ready.

 

Scenario 2: Worker has been paid as a W-2 Employee via 7shifts Payroll
  1. Log in to the 7shifts web app as an Admin or Manager with the necessary permissions.
  2. Go to: Team > Employees > Open the employee's profile > Employment > Employment History > Edit Employment Details.
    Screenshot 2024-09-20 at 3.36.49 PM.png
  3. Check the Payroll Classification field: If this field is uneditable, the employee has already been paid under the current classification.Screenshot 2024-09-20 at 11.00.32 AM.png
  4. To update the classification, first, terminate the employee's current employment.
    Screenshot 2024-09-20 at 11.04.35 AM.png

  5. Then, add a new employment period with the correct classification.

    Screenshot 2024-09-20 at 3.43.05 PM.png

    Screenshot 2024-09-20 at 11.08.41 AM.png

    Important: This ensures accurate year-end tax filings, ensuring the employee receives the correct tax documents.

  6. Finally, send an onboarding package:
    • Send the employee a new onboarding package with the updated classification to collect the appropriate tax documents and get them payroll-ready.
Scenario 3: Contractor mistakenly paid as a W-2 Employee

If a contractor was mistakenly onboarded and paid as a W-2 employee, you must reclassify them and request a payroll correction to ensure accurate year-end 1099 reporting.
 

Note on Tax Refunds: 7shifts can refund tax liabilities for the current quarter. However, for taxes already sent to government agencies, you or your accountant must contact those agencies directly to claim a refund using the amended returns we provide.

  1. Follow the steps in Scenario 2 to terminate the W-2 profile, re-add them as a Contractor (1099), and send a new onboarding package to collect their W-9.
  2. Contact 7shifts Support to request a historical correction. We will void the incorrect W-2 payroll runs, adjust money movement, and generate the amended tax returns you need for your agency refunds.
  3. Once support confirms the voids are complete, log the past earnings under their contractor profile:
    1. Create an Off-Cycle Payroll for the contractor.
    2. Manually enter the gross earnings they previously received.
    3. Select Paper Check as the payment method. This logs the earnings for year-end 1099 tracking without triggering a duplicate direct deposit.

 

Sending an Onboarding Package to a 'Reclassified' Contractor

Once you’ve updated an employee's payroll classification to Contractor (1099), follow these steps to send them an onboarding package and collect the necessary documents:

      1. Go to: Team > Employees > Onboarding.

      2. Select Send Onboarding Package.

      3. Select the Location & Employee.

      4. Ensure that Contractor is selected as the Payroll Classification.

      5. Review the onboarding package to make sure all required documents (e.g., W-9 forms) are included.

      6. Click Send.

Note: This ensures that the contractor receives and completes the appropriate forms for accurate tax and payroll processing.

Send Package.png

Enter Year-to-Date (YTD) Earnings for Contractors

If a contractor has already been paid outside of 7shifts Payroll this year, it's crucial to record their year-to-date (YTD) earnings to ensure accurate quarterly and year-end tax filings. Follow the steps below to correctly enter their YTD earnings into 7shifts:

  1. Create an Off-Cycle Payroll: Start by creating an off-cycle payroll run. This is typically used for payments outside of regular payroll cycles but will be used here to capture the contractor's existing earnings.
  2. Add the Contractor: In the off-cycle payroll, only include the contractor whose YTD earnings need to be recorded.
  3. Enter YTD Earnings and Reimbursements: Manually input any earnings or reimbursements the contractor has received to date. This will update their earnings record in the system.
  4. Set Payment Method to Paper Check: To avoid issuing an actual payment, set the contractor’s payment method to Paper Check.

  5. Do Not Print the Check: Since this is for record-keeping purposes only, you don’t need to print or distribute the check. This ensures the YTD earnings are logged without making an additional payment.

    Note: Following these steps ensures accurate tax records and prevents duplicate payments while keeping the contractor’s earnings up-to-date for year-end reporting.

Was this article helpful?
1 out of 5 found this helpful