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What paperwork do I need when I hire a contractor?

HiringContractorsComplianceTax

Two documents: a consulting agreement, signed before any work starts, and a Form W-9, which gives you the taxpayer identification number for the 1099-NEC at year end. The contractor invoices, you pay without withholding, and they never go on payroll or benefits. What makes the arrangement safe is not the paper but the facts. A contractor you direct hour by hour is an employee, whatever the agreement says.

What the consulting agreement covers

The scope and deliverables, often in a statement of work attached to a master agreement so a new project does not need a new contract. The fee and how it is invoiced. An assignment to the company of the intellectual property created in the work, which does not happen by default for a contractor. Confidentiality. A statement that the consultant is independent, pays their own taxes, receives no benefits and controls how the work is done. Term and termination, including payment for work in progress.

Misclassification

The IRS looks at behavioral control, whether the company controls how the work is done; financial control, who bears the expenses and supplies the tools; and the type of relationship, benefits, permanence and whether the work is core to the business. California goes further with the ABC test, which presumes every worker is an employee unless the hiring entity shows the worker is free from its control, does work outside the usual course of its business, and runs an independently established trade of the same kind. A contractor doing the company's core work full time fails the second prong in California and is exposed everywhere; the cost is back employment taxes plus wage and benefit claims.

Invoicing and the 1099

The consultant invoices on the schedule in the agreement and the company pays gross. At year end it files a 1099-NEC for each contractor paid at or above the threshold, $2,000 for payments made in 2026 and inflation-adjusted after that, using the W-9 details.

Arabella's consulting agreement is a master agreement with statements of work, filled by questionnaire. If the contractor sends their own paper, the redline tool reviews it.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.