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The application enables you to set up and process data for payees that are deemed independent contractors. You can enter and track hours and compensation for independent contractors along with standard employees and report on independent contractor information and transaction amounts in payroll-based reports.

To set up a client's payee as an independent contractor, follow the steps below.

Setting up a nonemployee compensation pay type payroll item

The client must use a nonemployee compensation pay type payroll item for independent contractor employees. If the client does not yet have such a payroll item set up, follow these steps.

1. Choose Setup > Payroll Items.
2. Click the Add button and enter information for the new nonemployee pay item. (For more details, see Creating and adding payroll items for your client.)
3. In the Calculation section of the Main tab, select Nonemployee compensation from the Special type drop-down list.
4. When all payroll item information is set up, click Enter to save the information.

Setting up a nonemployee reimbursement pay type payroll item

If independent contractor employees are to receive reimbursement amounts on payroll checks and those amounts should not be included on the Form 1099-NEC, you will need to set up a nonemployee reimbursement pay type payroll item, if none are set up yet.

1. Choose Setup > Payroll Items.
2. Click the Add button and enter information for the new nonemployee pay item. (For more details, see Creating and adding payroll items for your client.)
3. In the Calculation section of the Main tab, select Nonemployee reimbursement from the Special type drop-down list.
4. When all payroll item information is set up, click Enter to save the information.

Adding an independent contractor employee

When the client has nonemployee payroll items set up, follow these steps.

1. Choose Setup > Employees.
2. Click the Add button and enter information for the new employee. (For more details, see Adding employee information.)
3. In the Identification section of the Main tab, select Independent Contractor from the Type drop-down list.
4. Click the Payroll Items tab.
5. In the Nonemployee Compensation section, mark the checkbox for the appropriate nonemployee compensation payroll item. The pay items that are available in this grid are the pay items specified as special type Nonemployee Compensation or Nonemployee reimbursement in the Main tab of the Payroll Items screen.
6. Mark the checkboxes for any appropriate deduction items or employer contributions for this employee.
7. Click Enter to save the employee information.

Creating and printing payroll checks for independent contractors

1. Choose either Actions > Enter Transactions or Actions > Enter Batch Payroll Checks.
2. Enter payroll checks for the independent contractors. (For more details, see Entering individual payroll checks or Entering batch payroll checks.)
3. Print the checks as usual.

Creating new hire independent contractor files

Use the Process New Hire California Independent Contractors screen to create new hire files for independent contractors to send to the California state agency. In the grid, You can specify the independent contractors to include in the file, their IDs, name, year-to-date earnings, contract start date, contract amount, content expiration date, and a checkbox to specify if the contract is ongoing. In this screen you have the option to preview files, manage files, and create new files.

1. Choose Actions > Process New Hires > California Independent Contractors.
2. The Independent contractor grid contains a list of all clients with newly hired independent contractors (or contractors that have not yet been reported as new hires). Mark the checkboxes next to either the client or individual independent contractors within a client that you want to include in the new hire file.

   Note: You can change the reported status of an independent contractor by marking or clearing the New hire reported checkbox in the Personal tab of the Employees screen.

3. Click the Preview Selected button to preview the information that will be contained within the new hire file(s). Within the File Viewer dialog you can choose to show the field marker lines, view the previous or next file, or click the OK button, which will close the dialog.
4. Click the Create File button to create the new hire file(s). The files are stored in the location displayed at the bottom of the screen, but you can change this location in the Setup > File Locations dialog.
5. You can remove information from within the created file by clicking the Manage Files button to open the Manage New Hire California Independent Contractor Files dialog. Mark the checkbox for a client or individual independent contractor and click the Mark as Unreported button to move that information back to the Process New Hire California Independent Contractors screen.

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