Why You Shouldn’t Use Venmo to Pay Contractors

July 2, 2021
|
Business Basics

One of my favorite tools for splitting expenses and sending money to my friends is Venmo.

Forgot your wallet and need a friend to spot you? Venmo them. Splitting rent or utility payments with your roommates? Venmo. Including ridiculous messages while sending my payments was just a bonus.

And for a while, running my small business meant using Venmo to send money to independent contractors that I hired for jobs. 

After all, it’s a great tool for sending money to my friends and family, why not my contractors?

The 1099 Problem

Whenever you hire an individual in the US as an independent contractor, the IRS requires that you file form 1099-MISC if you have paid them “At least $600 in rents, other income payments, [or] the cash paid from a notional principal contract to an individual, partnership, or estate.”

Oof.

Of course, there are some exceptions to this rule depending on the business that you’re contracting with. If they’re not a single member LLC or sole proprietor, you may not need to file that 1099. There are also plenty of labor laws that dictate who you can and can’t hire as a contractor, like California’s Assembly Bill 5.

That means that, as a wedding photographer, any time I hired a second shooter to provide additional coverage to my clients, I needed to file a tax form if I’ve paid them over $600 in the year. Sending cash through something like Venmo or Cash app can make it exceedingly difficult to actually track who’s getting paid when and for how much. 

What Venmo Has to Say

Recently,  Venmo decided to introduce a brand new feature to their services. The ability for businesses to receive payments for goods and services directly from their platform. Here’s what their help center has to say about it:

“Venmo will soon give buyers the option to identify a payment as being for a good or service. This means that it'll automatically be covered by Venmo's Purchase Protection Program and the seller will be charged a small fee of 1.9%+$0.10 of the transaction.”

So, any transactions identified as being a payment for a good or service are now subject to a fee, while payments between friends remain free. Because of their new business profile, it’s entirely possible that the company may start cracking down on payments for goods and services.

How to Pay Contractors

If you just recently started a business, you need to know how to pay contractors. Venmo isn't the right platform for paying contractors because you don't have the ability to track how much and how often you're paying people, you have no way of collecting the right information, and it can create inconsistencies in your recordkeeping.

In order to properly pay a contractor, you should first know and understand what a contractor is, collect the right tax information, and then choose the right method of payment.

While Venmo may not be the right platform, there are plenty of options to choose from both online and in physical form.

So what’s the alternative?

While Venmo may provide the ease of use that we’re used to when sending payments between friends, it’s not the best for paying your contractors. So what should you do?

Glad you asked.

There are tons of ways to send money and track 1099s for free. Here are some options:

Melio (FREE): Melio is a free way to send payments to your contractors and track 1099s for free. It’s extremely easy to use and it makes paying people a breeze.

QuickBooks (+$25/month): If you’re already using QuickBooks for your bookkeeping needs (or you’re having us take care of it for you), you can use it to track 1099 payments. When tax time comes, you can easily have those 1099s sent out to contractors automatically, too!

Gusto (+$6/person): Whether or not you’re paying yourself a regular salary, Gusto is a great option for paying independent contractors cheaply and efficiently. They’ll track your 1099s as well!

Write a check: Okay, I know this might feel outdated, but checks are truly the originator of contractor payments. While checks may not automatically track your 1099s, they’ll at least give you a paper trail to record in your accounting software.

Jeremy Millar
Written by:
Jeremy Millar

Free Download:
The Ultimate Guide to Financial Storytelling

Contact Us
©Amarlo, Inc. 2020 | All rights reserved
Web Design by Team Amarlo