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Independent contract-based work gives you freedom of time and place and keeps you from being tied to one employer for all your pay and benefits. But it also means taking up more responsibility than traditional employees.
When we hear the word paycheck or paystub, we immediately think “job” because a paycheck stub is something we usually associate with a job. But do freelancers and gig workers deal with paystubs? Yes, they do, but they don’t get their paycheck stubs from clients – they generate them themselves.
In this blog post, we’re going to discuss what independent contractor paystubs are and what common paycheck stub abbreviations you have to deal with as a gig worker. Let’s start with how traditional employees and contractors are fundamentally different in their payroll so we can learn how it affects their paystubs.
How Freelancers/Contractors Are Different From Employees
Contractors are different from employees in the following ways:
Relationship With Employer
Employees have a permanent relationship with their employer. This arrangement is long term and employees are dependent on employers for their income.
Independent contractors usually have a short-term, gig-based relationship with their clients that ends as soon as the project is completed.
Payroll
The payroll of a traditional employee is managed by their employer. The employer calculates the pay, withholds the taxes and other deductions, and pays the rest to the employee as take-home pay along with a clean paystub that outlines all the calculations.
A gig worker, on the other hand, receives no such paycheck stub from their client. They usually create one themselves to keep track of their payments.
Taxes
The employer withholds each employee’s taxes (like Federal Withholding Tax) and pays them to the government on their behalf. So their tax work is automated to a great extent.
As a freelancer or contractor, you have to pay your taxes yourself. Your client doesn’t deduct anything.
Tax Forms
Employees get a W-2 form from their employer at the end of the tax year that details all the salary paid and taxes deducted.
Freelancers get a 1099-NEC form from a business that has paid them more than $600 in a year. It just lists the total payment sum, not individual payments.
What Is an Independent Contractor Paystub?
An independent contractor paystub is a 1099 paystub that gig workers create themselves to keep track of their earnings, since they don’t get a check from an employer. If you aren’t creating it up till now, it’s a good time to start thinking about it.
Why Contractors Need to Create Paystubs
The following benefits explain the importance of paystubs for independent contractors. Freelancers create paystubs to:
Track Their Income
Clean paystubs created by our 1099 form generator outline the working hours, pay rate, pay period, and any deductions. This helps you maintain a clean record of earnings from each project.
Financial Transparency
You can share the same paystub with your client to make sure both of you are on the same page when it comes to transactions and payments. This maintains accountability and trust.
To Maintain Record/Proof of Employment
Having proof that says “this guy earns” is important for every individual, whether they’re self-employed or not. Paystubs help contractors have that proof of income that they can use when they’re buying a rental property, mortgage, etc.
Dispute Resolution
If a particular contract gets to court – like in the case when your client tries to cross agreement limits or refuses to pay – paystubs are clean proof that help resolve such a case, because law is all about documented proof.
Tax Reporting
As a gig worker, you need to do your taxes yourself. If you track your proof of income in the form of paystubs, it’s easier for you to file your tax form 1099 at the end of the tax year. You would have already calculated taxes each time you generated a paystub.
Paycheck Stub Abbreviations That Gig Workers Need to Understand
A paystub usually has a lot of paycheck stub abbreviations that are important for you to know so you can understand what your paystub means and where your money is going. Independent contractors are lucky in the sense that their 1099 form doesn’t have many scary abbreviations.
Following are the paycheck stub abbreviations/components that you’ll most commonly encounter.
1. Personal (Recipient) Details: This is one of the top fields where you write your details like name, state, address, etc. There usually isn’t an abbreviation for it and this field is very easy to understand. In some cases, your paystub might say “recipient details” instead of “personal”.
2. Client (Payer) Details : Client details, also known as the payer details, are the name, state, address, and ZIP code of the client or payer. It can be an individual or you can also write a company name here if you worked with an organization.
3. Gross Pay: Gross Income: This is the full payment that the client deposits before any kind of deductions.
4. Rate: Pay Rate: This can include your hourly rate. The paystub might also have other specific or non-specific fields for details of the project. If the gig wasn’t priced by hours and had a fixed price, you can add that here.
5. Hrs: Working Hours: This field is for the total hours you worked on the project.
6. Write-Offs: Write-offs are any payments or expenses that are deducted from your taxable income.
7. Self-Employment Tax: This is the tax that you pay for Medicare and Social Security, etc.
8. Estimated Tax: This is the quarterly tax that you pay as a freelancer.
9. Net Pay: Net Income: The take-home income after all the tax deductions is your net pay.
These are most of the paycheck stub abbreviations that you need to know.
How Freelancers Can Create Their Own Paycheck Stubs
If you’re a gig worker or contractor and want to create your own paystubs regularly, you don’t need to spend hours on Microsoft Word or rely on accountants. You can create your own paystubs incredibly easily and don’t even have to do the calculations yourself.
Just go to https://www.paystubscity.com/1099-misc-form/ and fill in the following details:
- Basic information like year, income, and email
- Payer’s information like name and state
- Recipient’s name, state, and other information
- Any payments you make and any tax deductions
- State and tax details
Follow these basic steps and you’ll have a clean, organized paystub ready to download!
