Navigating payroll solutions for 1099 and W2 employees can feel like managing two completely different playbooks, like you’re juggling two completely different systems. From tax compliance and contractor classification to international payments and reporting, businesses need a unified approach that’s built to handle complexity without increasing risk.

In this post, we’ll break down your options for managing a blended workforce, highlight common payroll challenges, and help you choose a solution that works for both employee and contractor needs. Typically, payments made to 1099 contractors cannot be referred to as payroll; however, to ease readability, we use the term payroll solution in this article.

What’s the difference between payroll solutions for 1099 and W2 employees?

The core distinction between payroll solutions for 1099 and W2 employees comes down to classification, tax, and legal obligations. These are outlined in the following table for ease of understanding. 

Payroll solution differences between W2 employees and 1099 contractors

Feature	1099 Contractors	W2 Employees
Tax Withholding	Contractor handles their own	The employer is responsible (Should File Form W-2)
Benefits	Not eligible for employer benefits	Eligible for benefits like health insurance, PTO, etc.
Payroll System	Often invoice-based or milestone-based	Runs on a schedule (weekly, biweekly)
Compliance	Governed by contract and classification	Subject to employment laws
Payment Tooling (Payment method)	Often managed via invoicing and disbursement platforms	Typically managed through payroll software

It’s imperative to get this distinction right, especially worker classification, since misclassified workers lead to serious financial and legal consequences. 

What payroll solutions work best for a mixed workforce?

If you’re managing a hybrid workforce, there are a few payroll options that you can explore that can help you manage paying independent contractors effectively. Here are the three most popular.

	Global Workforce Management Platforms (e.g., Payoneer Workforce Management)	Full-Service Payroll Providers	Contractor-Only Platforms
Handles W2 Employee Payroll	✅	✅	❌
Handles 1099 Contractor Payments	✅	❌	✅
Global Payment Support	✅	❌	✅
Contractor Classification Assistance	✅	❌	✅
Integrated Compliance Tools	✅	✅	❌
Ideal for Blended (W2 + 1099) Workforces	✅	❌	❌

1) Global Workforce Management Platforms (Like Payoneer Workforce Management)

Payoneer Workforce Management supports both employees and contractors, offering a centralized platform that streamlines global payroll, classification, tax documentation, and compliance. It’s ideal for companies hiring internationally or scaling remote-first operations.

2) Full-Service Payroll Providers

These providers handle tax calculations, W2 filings, and employee benefits. They work well for traditional teams operating within the U.S.

3) Contractor-Only Platforms

These platforms are designed for freelancer-heavy teams, offering contractor payments and, in many cases, basic classification support. However, they typically lack the full capabilities needed to manage employee payroll.

Why Payoneer Workforce Management stands out

You don’t need separate systems or messy workarounds to manage your hybrid workforce. What you do need, however, is a platform built for how modern teams actually work. With Payoneer Workforce Management, you can:

• Streamline payroll for W2 employees and 1099 contractors
• Stay compliant in 160+ countries
• Issue timely global payments in 70 currencies
• Reduce misclassification risk with seamless support and documentation workflows

Ready to simplify your workforce payroll solutions?

When it comes to payroll solutions for 1099 and W2 employees, Payoneer Workforce Management helps reduce the complexity when managing hybrid workforces. 

We’ve helped businesses of all sizes scale with confidence by simplifying global payroll, streamlining compliance, and giving teams the freedom to focus on what they do best: delivering exceptional solutions to their clients.

Request a free demo of Payoneer Workforce Management today and see how seamless payroll solutions for 1099 and W2 employees can be.

FAQs

1. Can I use the same payroll software for W2 and 1099 workers?

Yes, with the caveat that most platforms are not built for both. While traditional payroll software may support basic payments to 1099 contractors functionality, only integrated solutions provide the end-to-end tools necessary to effectively manage both workers under one platform, especially when hiring globally.

2. How do I stay compliant when paying 1099 contractors?

• Classify workers correctly under local labor laws
• Collect Form W-9 and issue 1099-NEC forms
• Avoid treating one group like the other (e.g., treating an employee like a contractor or vice versa)

A comprehensive workforce management platform like Payoneer Workforce Management simplifies onboarding, tax documentation, and classification.

3. Is the process the same for paying 1099 contractors and W-2 employees?

No, the process is different. W-2 employees have taxes withheld by the employer and receive benefits. 1099 contractors handle their own taxes, and employers only issue payments and, if required, a 1099 form.

4. How do I file taxes if I have both a 1099 and a W-2?

You’ll report your W-2 income as wages and your 1099 income as self-employment income on your tax return. You may need to file additional forms like Schedule C and pay self-employment tax on your contractor earnings.

5. Can an individual be both an employee and an independent contractor?

Yes, but only if the roles are completely separate. The work done as a contractor must be outside the scope of the employee’s regular duties and meet IRS guidelines for independent contractor classification.