The scenario you're probably in
You run an agency, freelance studio, or service business that pays mostly 1099 contractors and few or no W-2 employees. You want a clean way to send recurring payments, track them for year-end 1099-NEC reporting, and not deal with a full payroll product designed for W-2 teams.
Or: you have a W-2 team plus contractors and want both inside one platform.
Either way, Gusto handles contractors as a first-class use case. The Contractor-Only plan exists specifically for the first scenario.
Why contractor payments get tricky
Three things to get right:
Worker classification. Misclassifying an employee as a contractor is expensive. The IRS, the DOL, and most states have separate tests. If a worker uses your equipment, follows your hours, and only works for you, they're probably an employee no matter what your contract says. Talk to your accountant if you're unsure.
1099-NEC reporting threshold. As of tax year 2026, the threshold for issuing a 1099-NEC is $2,000 paid to a contractor in a calendar year (the threshold rose from $600 starting in tax year 2026). You're still required to track contractor payments for any amount; the threshold just determines whether you're required to issue the form.
Multi-state contractor sourcing. Contractors in some states (notably California with AB-5) have stricter classification rules. If you're paying contractors across state lines, your obligations vary by state.
Gusto handles the operational side cleanly. It does not handle the classification decision; that's still yours.
2026 contractor pricing math
Contractor-Only is the cheapest correct answer for 1099-only operations.
Plans
| Plan | Base / mo | Per employee / mo | Best for |
|---|---|---|---|
| Contractor Only | $35 | $6 | 1099-only operations: agencies, freelance studios, no W-2 employees. Bills only in months paid. |
| Simple (with contractors) | $49 | $6 | Mix of W-2 employees and contractors, single-state. |
| Plus (with contractors) | $80 | $12 | Mix of W-2 employees and contractors, multi-state. |
Real-world scenarios
| Headcount | Recommended plan | Monthly | Notes |
|---|---|---|---|
| 5 contractors, no W-2 | Contractor Only | $65/mo | |
| 10 contractors, no W-2 | Contractor Only | $95/mo | |
| 5 contractors paid only Q4 (3 months) | Contractor Only | $65 × 3 + $35 × 9 | Off-month bills drop because Gusto only bills for contractors actually paid. |
| 3 W-2 employees + 5 contractors | Simple | $97/mo | 3 W-2 × $6 + 5 contractors × $6 + $49 base. |
Step-by-step setup
Sign up for Gusto using my referral link
Estimated time: 5 minutes
If you're 1099-only, pick Contractor Only at signup. If you have or will have W-2 employees, pick Simple or Plus.
Watch out: If you start on Contractor Only and later hire a W-2 employee, you'll switch plans at that point. Gusto handles the migration cleanly.
Add each contractor
Estimated time: 5 minutes per contractor
Workers > Add Worker > Contractor. Enter name, email, payment terms. Gusto sends them a self-service link to complete W-9 (or W-8 BEN if international) and connect their bank.
Watch out: Use the self-service link. Don't try to enter W-9 details for them. The contractor's signature on the W-9 is the legal record.
Set up your contractor pay schedule
Estimated time: 5 minutes
Pay Schedules > New Contractor Schedule. Pick the cadence. Many agencies pay contractors twice a month or monthly.
Watch out: Contractors don't have to share a pay schedule with W-2 employees. If your team wants different cadences, set up separate schedules.
Run your first contractor payment
Estimated time: 5 minutes
Run Contractor Payment > select contractors > enter amounts > submit. Gusto processes direct deposit on the standard 4-day timing.
Watch out: Contractor payment amounts aren't pulled from time tracking; you enter them manually each cycle. If you're invoicing-based, this is the rhythm: contractor invoices you, you enter the amount in Gusto.
Confirm 1099-NEC tracking
Estimated time: Year-end, January
In late January, review the Tax Forms > 1099 section. Gusto lists every contractor paid during the year and the YTD total. Contractors paid above the 1099-NEC threshold automatically get a 1099-NEC issued to them.
Watch out: Make sure each contractor's W-9 is marked complete in Gusto before year-end. Missing W-9 is the most common reason a 1099 doesn't generate.
Where Gusto falls short for contractor-heavy operations
Two real limitations:
No native invoicing or project tracking. Gusto pays contractors; it doesn't manage the invoice-to-payment workflow. If your contractors send you invoices and you need to track which got paid against which project, you'll want a separate tool (QuickBooks, Wave, Bonsai, or similar) for the invoice side.
International contractor payments are supported but not always cheapest. Gusto supports international contractor payments, but the FX spread and fees may exceed what a dedicated international payments tool (Wise, Deel) charges. Worth comparing if you have many international contractors.
FAQ
- What's the cheapest way to pay 5 contractors monthly?
- Gusto Contractor Only at $35/mo base + $6/contractor = $65/mo for 5 contractors paid every month. If you only pay them some months, your monthly bill drops accordingly because Gusto only bills for contractors in months you've actually paid them.
- Do I need a 1099-NEC for every contractor?
- Issue a 1099-NEC for any U.S. contractor you paid above the 1099 threshold in the calendar year. As of tax year 2026, that threshold is $2,000 (raised from $600). Track every payment regardless; the threshold determines reporting, not record-keeping. International contractors get W-8 BEN treatment instead.
- Can I switch from Contractor Only to Simple if I hire a W-2 employee?
- Yes. Gusto handles the plan migration. Your contractor records and history come with you.
- Does Contractor Only include international contractors?
- Yes, with FX-spread fees. Compare against Wise or Deel if international payments are a meaningful portion of your contractor spend.
- What if a contractor disputes their payment amount?
- Cancel the pending payment if it hasn't processed yet (under Contractor Payments), correct the amount, and re-submit. If it's already processed, you'll need to issue a corrected payment outside Gusto and adjust the next cycle's payment to net to the right total.
- Does the Gusto referral bonus apply to Contractor Only signups?
- The referral bonus mechanics are the same. The bonus pays after a real first payment runs. Contractor Only counts.
I run r/gustoreferral, a small subreddit for people signing up for Gusto and asking real questions before they commit.
r/gustoreferral community →Affiliate disclosure: I earn a commission if you sign up through links on this page, at no extra cost to you. I only recommend Gusto because I run it for my own business. Read the full disclosure →
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$100 or $200 bonus after your first payroll or contractor payment. Use the link to lock in the bonus.
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