The short answer is that you don’t set up payroll for 1099 workers because they’re not employees. The term “1099 employee” is a contradiction. Workers are either employees who receive W-2s and go through payroll, or they’re independent contractors who receive 1099s and don’t go through payroll at all. The distinction matters more than most business owners realize.

If you have independent contractors, here’s what you actually need to do. Collect a W-9 form from each contractor before you pay them. This gives you their legal name, business name if applicable, address, and tax identification number. Keep these on file because you’ll need them at year-end.

Pay contractors however you’ve agreed. Check, ACH transfer, Zelle, Venmo for Business, whatever works. These payments don’t go through payroll software. They’re just regular business expenses coded to a subcontractor or contractor expense category in your books. No tax withholding, no employer contributions, no deductions of any kind.

Track every payment you make to each contractor throughout the year. At year-end, if you paid any contractor $600 or more, you need to file a 1099-NEC with the IRS and send a copy to the contractor by January 31. Your startup bookkeeper or accounting software can generate these if your payments are tracked correctly throughout the year.

If you’re wondering whether your workers are actually contractors or employees, here’s the short version. The IRS looks at behavioral control, financial control, and the type of relationship. If you control when, where, and how someone works, provide their tools, set their hours, and they work exclusively for you, they’re probably an employee regardless of what you call them. Calling someone a contractor to avoid payroll taxes doesn’t make them a contractor.

Misclassification is expensive. You can owe back employment taxes, penalties, and interest going back years. State labor departments in Utah and across the Wasatch Front take this seriously. So do the IRS and Department of Labor. It’s not worth the risk to save a few percentage points on payroll taxes.

If you actually have employees or workers who should be classified as employees, you do need to set up proper payroll. That means registering for state and federal tax accounts, calculating withholdings correctly, making tax deposits on time, and filing quarterly returns. Getting help with payroll setup ensures you’re compliant from day one and avoids costly penalties down the road.