The Ultimate Independent Contractor Paystubs Guide [2023]

The Ultimate Independent Contractor Paystubs Guide [2023]

If you are a freelancer, do you create an independent contractor paystub for every short or long-term project that you complete?

When working autonomously, much focus should be given to ensuring you stay protected against scammers and instances of non-payment from your clients. One of the surefire ways that you can achieve that is by creating independent contractor pay stubs.

This article will tell you all about these important documents, explain their benefits, and show you how to make them effortlessly.

So, without further ado, let’s dive right into it!

Key Takeaways

  • Independent contractors are hired by companies or employers to complete a particular service. They are usually employed on a short-term or project-based arrangement.
  • An independent contractor paystub enumerates the total gross and net earnings, hourly rate, client information, and tax payments.
  • Employees and independent contractors differ in terms of their work arrangement and schedule, entitlement to certain workplace benefits, terms of employment, etc.
  • The easiest and most efficient way to make independent contractor paystubs is to use an online paystub generator.

What is an Independent Contractor?

An independent contractor is an individual or establishment booked to fulfill specific services and tasks for a company or business without the need to be hired as an employee. These professionals typically work on short-term projects and are expected to fulfill the tasks assigned to them in a more flexible setup.

Some of the most common examples of independent contractor jobs include accounting, consulting, delivery, driving, and legal assistance services. The IRS categorizes independent contractors as self-employed and imposes self-employment taxation on them.

Independent contractors do not work for any company or employer, which means their Social Security and Medicare taxes are not covered by their client or the company that hired them for their services.

Independent contractors shoulder the costs and responsibilities tied to fulfilling their federal, state, and local tax obligations.

What is an Independent Contractor Paystub?

Unlike employees who are working for a company or corporation, independent contractors fulfill both the responsibilities of the employer and the employee in calculating their earnings and taxes.

As such, independent workers create an independent contractor paystub to itemize all of the income they have earned for a specific project or contract.

This type of pay stub is also used to enumerate tax rates and deductions on their income, specify their hourly rates or rate per service, and provide a breakdown of the total number of hours worked.

By compiling all the paystubs created for each project, independent contractors are prepared come tax filing season.

Differences Between an Employee and an Independent Contractor

The main difference between an employee and an independent contractor is that an employee is part of a business’s or company’s payroll and is entitled to salaries, wages, and benefits in exchange for their services and skills. The latter, or independent contractor, is employed on a project-based or short-term work arrangement but is not covered by any workplace benefits.

The following are other essential distinctions between independent contractors and employees:

  • Work arrangement. Independent contractors work solitarily and may even follow their preferred working hours for as long as they can complete the tasks set out for them to do in a project. Employees are required to work a fixed shift, and they follow the standard business days in determining the number of work days they have in a week or month.
  • Employer accountability. Employers or clients are not obliged to fulfill the tax obligations of independent contractors, nor are they required to cover any benefits for freelancing professionals. However, if a worker is hired as a full-time employee in their company, then employers must withhold federal, state, and local taxes from employee salaries, ensure their benefits are provided, and calculate their gross and net income for each pay period.
  • Pay rate. Independent contractors are usually paid per hour. Their rates depend on their work experience or level of expertise in their field. Employees are paid a fixed salary, although their hourly rates are specified in their paycheck to ensure that their gross and net salaries for each pay cycle are computed correctly.
  • Pay schedule. Regarding their pay schedule, independent workers are paid for every project they have completed. In some instances, they may charge a down payment before completing the service as a form of insurance. Employees can either be paid weekly, biweekly, bi-monthly, or monthly depending on the payroll cycle used by their employer.
  • Employment. Once an independent contractor duly completes the services they were hired to do and gets paid in exchange, their contract with the company or client ends. That means they no longer have any affiliation or obligation left with their client. On the other hand, employees retain their employment in a company for as long as they are not terminated by their employer or the employee has not yet filed for a resignation.

Employer Control Degrees

Employer control degrees are the extent to which an employer exercises authority and imposes certain tax and wage-based obligations on their employees. These degrees are what separate an independent contractor from an employee.

Employer control degrees are subclassified into the following:

  • Behavioral control. If an individual completes their tasks at their preferred working time and has undergone specialized skills training out of their own volition, then that makes them an independent contractor. Employers arrange a fixed working schedule for their employees, and their staff must comply with their work schedule in return. At the same time, employers are expected to cover any additional training needed to hone the skills of their employees.
  • Financial control. Employees work exclusively for a single company or employer, while independent contractors may have multiple projects or clients simultaneously. A contractual worker is also more entitled to recognize and assert their profits and losses, seeing as how they are not covered by any company benefits or tax withholding coverage by an employer.
  • Relationship with employer. A worker who retains their affiliation with a company indefinitely is likely to be an employee. Employees are also assessed based on their work performance and are expected to build rapport with fellow staff and even with their employers over time. Conversely, independent contractors have a specified period at which they maintain a working relationship with a client. They are not bound by any work performance metrics, and their connection to a client or company ends once the specified duration of their work arrangement is fulfilled.

It is important to note that, despite the stark differences in the work setup and employer relationship that independent contractors have with employees, contractually hired workers and employees are both bound by a written or oral contract.

The contract indicates the scope of work that independent contractors and in-house staff are expected to complete in exchange for their compensation and benefits. Contracts also specify the duration of the project assigned to an autonomous contractor.

For employees, their work contract is usually given once they complete probationary status and are employed continuously as regular staff.

Do Independent Contractors Need Paystubs?

Independent contractors are their own bosses. They have more freedom work-wise, compared to full-time employees. While contractual workers also have the freedom of choice when it comes to creating paystubs or not, it is still advisable for them to record all of their finances, earnings, and taxes.

Regularly creating paystubs as an independent contractor comes with several benefits, which we’ll talk about in-depth in the following section.

#1. Easily Tracked Expenses

If you are working autonomously, creating paystubs gives you a concrete idea of how much you are making regularly. It is especially true if you have ongoing projects or recurring clients.

The more aware you are of the amount of money you make on a small or large-scale project, the more you can draft an efficient budgeting plan to balance your earnings with your regular expenditures.

#2. Hassle-free Tax Filing

One of the biggest mistakes made by independent contractors is disregarding the importance of their pay stubs for filing their taxes. Pay stubs enumerate the tax rates withheld from every payment received, thereby simplifying the process of calculating how much more is owed by the contractor.

Moreover, accurate tax calculations enable you to figure out whether you qualify for a tax return or not.

#3. Easier Paperwork With Electronic Filing

Consistently preparing pay stubs for every client and project means having a complete reference ready for when you file your taxes electronically. After all, the convenience of electronic filing is canceled if your tax documents and profit and loss statements are incomplete.

What Does an Independent Contractor Paystub Include?

A general independent contractor paystub template contains the information enumerated below:

  • Client information. It contains your client’s name, business address, and contact information. It is best to place your client’s details at the top left corner of your pay stub.
  • Personal information. Specify your name, contact details, and address. Your personal information also includes your social security number and the date when payment is expected from your client.
  • Pay rate. Your pay rate is your hourly rate. It serves as the basis for ensuring your pre and post-tax earnings are calculated correctly.
  • Hours worked or rendered. It refers to the total number of hours you have rendered in completing a task or project for a client.
  • Current total. The current total simply details your total pay rate multiplied by your hourly rate.
  • Gross earnings. Your gross earnings are similar to your current total. It reflects the total amount that you have earned before taxes are deducted from your income.
  • Tax deductions. Tax deductions include your federal, state, and local taxes. Most independent contractors use abbreviations for each tax to identify and distinguish one from the other. Some of these common abbreviations are FED TAX, STATE TAX, FICA MED, and FICA SS TAX.
  • Net income. Your net income is your total earnings after your tax payments are deducted from your gross earnings. This is the amount that your client will send as payment for your services.

How to Create Independent Contractor Paystubs

The more clients and projects you work on, the higher the demand for your time. As such, you may not always have enough time to prepare new pay stubs for every new gig.

Fortunately, you can always use a paystub generator. With an online paystub generator, the template is already laid out for you, and all you have to do is fill in all the blank boxes with the needed information.

Just follow these steps:

  1. Open the paystub generator.
  2. Choose a template and fill in the blank fields with the correct details.
  3. Preview the pay stub and generate the document.

Other Important Independent Contractors Forms

Aside from your pay stub as an independent contractor, you are also required to prepare a Form w-9 and Form 1099 NEC.

Form w-9

A Form W-9 is used to provide employers or clients with key personal information about an independent contractor or freelancer. This IRS form contains your legal name, place of residence or address, Social Security Number (SSN), and Tax Identification Number (TIN).

Form 1099 NEC

The Form 1099 NEC is filled out to report non-employee compensation to the IRS. Before the year 2020, independent contractors reported their non-employee earnings using Form 1099-MISC. Presently, independent contractors are expected to receive a Form 1099 NEC from a client or employer, provided that they are paid more than $600 within the 2020 tax year or the succeeding years.

Final Thoughts

Earning money as an independent contractor definitely has its perks. You are more in control of your time, and you save more on travel expenses and resources. You can also take on as many projects as you can, especially if you need to earn extra cash.

On the other hand, you must bear in mind the limitations of working autonomously. Since you do not have an employer to take care of your tax withholdings or serve as your “protector” against irate clients and fraudsters, keeping yourself protected from scams and potential disputes becomes your sole responsibility.

In that regard, it is smart to record pay stubs, expenses, and taxes regularly. Make sure to store them securely so that you remain prepared once you file your taxes or find yourself having to justify your income source to a federal or local governing body.


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