Contractor vs Employee: What Actually Changes in Payroll
9/8/2026
Worker classification is a legal question with a very practical payroll consequence. This is a general overview, not tax advice — confirm your own situation with an accountant.
The short version
- Employee (W-2): you withhold taxes, and year-end reporting uses a W-2.
- Independent contractor (1099-NEC): you generally pay the gross amount, and year-end reporting uses a 1099-NEC when the annual total crosses the reporting threshold.
What that means for your records
Whatever the classification, the evidence you need is the same: who worked, when, where, at what rate, and what was approved. A pay record with an approval trail answers all of it.
Mixed workforces are normal
Many service companies run employees and contractors side by side, sometimes with contractors outside the US. QofaWork tracks the classification on each person so pay records and year-end summaries follow the right path.
Before year end
Check that every person's classification, legal name, and payment totals are correct well before January. Fixing it then costs minutes; fixing it after forms go out costs a lot more.