1099 Insights
April 20, 2023

What's the Best Way To Pay Independent Contractors?

Paying independent contractors can be a headache for some companies. Also known as 1099 or gig workers, paying these contractors involves an understanding of and adherence to specific tax rules and classification guidelines. Plus, keeping independent contractors loyal hinges on offering them fast, flexible payments that match the speed and flexibility of gig work they sought in the first place.

In order to make 1099 contractor payments as seamless as possible,  it’s essential for businesses to find a payment method which suits their business, suits their workers, and complies with tax regulations. We walk through the pros and cons of various methods so you can identify the best option for you and your business. 

4 ways to pay independent contractors


Some companies continue to pay their independent contractors in cash. But is it legal (and recommended) to do so? 

In our post on the topic, we explain why it’s not advisable, although it’s not illegal. Here are the reasons we wouldn’t recommend it: 

  1. Lack of built-in audit trail, which can cost you time and money further down the road. You’ll need to prove to the IRS that there was no suspicious reason for you to pay your workers in cash, such as incorrectly reporting your company’s expenses. This can be a time-consuming process. 
  2. Contractors prefer cashless methods, as this means they can usually be paid instantly, and then have immediate access to their earnings. In fact, 80% of workers would choose one gig platform over another if it meant they could be paid in a hassle-free manner. Cash means hassle; the future of paying 1099 workers is digital.
  3.  Complicates the proof of income process for contractors. Paying 1099 workers in cash can actually create more problems for them further down the line, as they have to generate their own invoices and link their bank account deposits to the right invoices. 
  4. Increased time and risk from procuring and handling cash can create additional headaches for you and your contractors.

While cash payments might seem to let you cut a few corners, it’s actually neither the simplest option nor the wisest.


An option that many businesses find attractive when looking for the best way to pay independent contractors is ACH. It involves electronic, bank-to-bank money transfers processed through the Automated Clearing House Network. Using this system, direct deposits are transferred into an account, meaning it’s convenient and quick. ACH transfers are a very common form of payment between businesses and contractors: over 90% of U.S. residents get paid through direct deposit. With ACH you can easily set up one-time or recurring ACH transfers, making it feasible for both 1099 contractors and W-2 employees—which is useful if you employ both types of workers. 

However, there are certain disadvantages of using ACH for 1099 payroll. ACH transfers can take up to three working days, which doesn’t meet the goal of providing your 1099 workers with fast payments. Plus, ACH often comes with fees for either your company or your workforce.

Some banks also impose spending limits for ACH payments. These limits may be daily, weekly, monthly, or per transaction, but they can complicate the payroll process and lead to workers waiting much longer than anticipated for their due pay. Overall, ACH for payroll is a common option, but it does have its drawbacks, which you won’t see with other options.  

Instant Payments

Platforms providing instant payments such as Branch tick all the boxes when it comes to speed, security, and compliance. Branch offers the same platform for both W-2 and 1099 workers, centralizing payroll and ensuring all worker payments can be immediately tracked and recorded.

Contractors receive a free digital wallet and Branch Business Card, a free business debit card that can be used wherever Mastercard is accepted. It’s a personal, easy-to-use system that makes it easy for contractors to keep track of their earnings. 

With real-time payments, gig workers can receive their hard-earned money within seconds. Branch vastly reduces the administrative workload, keeps 1099 workers happy, and provides a simple solution to a complex problem for free. 1099 workers can be paid per project completed, miles driven, or hours worked. Instant payments are the future of paying contractors—and you can get started today.

P2P apps

The pandemic boosted the use of peer-to-peer payment apps such as PayPal, Cash App and Venmo to pay workers as people avoided any physical contact. The attraction of these apps is based on the fact that they simplify money transfers by usually only requiring a name, email, or phone number to send or receive funds instantly.

However, there are a few things to consider about using P2P apps for regular 1099 payments. Being able to make payments so easily increases the possibility of paying the wrong person. If you accidentally pay the wrong person with an online banking system, you can easily get a refund by contacting the bank, but with P2P apps there’s no mediator involved. Many P2P apps do not have a refund or dispute system in place, making it very difficult for businesses or individuals to get their money back. 

Security breaches are another significant problem when it comes to P2P apps. Their accessibility means that users face a higher risk of fraudulent or scam transactions. Many users fall prey to false texts from their bank asking them to authorize their login details for their P2P app. This type of fraud links to a gray area of the Electronic Fund Transfer Act, which requires banks and or P2P platforms to refund unauthorized payments. If you have entered your details mistakenly, in many cases this counts as an authorized payment, which lets banks/P2P services off the hook.  

Plus, a recent IRS rule declared that if anyone receives more than $600 through a P2P app like Venmo or Paypal then that app must file and furnish a 1099-K Form for them to report the income they’ve collected. Our recent Gig Payments Report found that only 43% of workers were aware of this new rule for receiving payments through P2P apps and 57% felt like they needed more research. Plus, most of these apps also charge transaction fees, which may turn off some contractors. 

Frequently Asked Questions about Contractor Payments

Can I pay independent contractors with cash?

Technically you can pay gig workers in cash, however, it’s not recommended. Contractors generally prefer cashless payments, facilitating their proof of income process, but cash payments also provoke suspicion on behalf of the IRS, which requires a full audit trail. 

How much can you pay an independent contractor without a 1099 form?

A 1099-NEC form is only necessary if you’re paying over $600 to an individual contractor. The contractor will complete the form to report their earnings to the IRS. 

How many hours can an independent contractor work?

If someone is self-employed, there is no limit to the number of hours they work, though most contractors work around 35-40 hours per week. No week will be the same: gig workers often work flexible hours and determine their own limits. 

What are the ways I can pay an independent contractor?

There are various options for paying independent contractors, including P2P apps such as Paypal or Venmo, direct deposit via ACH, or cash. However, the fastest, most secure option is an instant pay platform such as Branch, which automates payroll and makes payments easy to track—at no cost to you or your gig workforce 

Pay your 1099 workforce easily, quickly, and legally with Branch

Overall, you want a payment method that enables you to pay workers securely, quickly, and accurately. Branch offers a solution that meets these criteria, without requiring any fees. 

It’s time to adapt to the future of paying contractors with the fast rise of the gig economy. With worker retention becoming an increasing priority, fast, flexible payments are now a must-have for businesses hiring 1099 workers. Optimizing your 1099 payments strategy is a necessity, and it’s definitely worth putting in the time and effort to determine the best option for your business and your gig workers. 

Get started today with Branch by signing up for a free demo, and start your journey to a smoother payroll process and happier workers.

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