Bookkeeping · Payroll & Compliance · Brief · Intro level
The contractor file: four documents that make January easy
W-9, signed agreement, invoices, and certificate of insurance — the vendor file to build at onboarding so 1099 season and every audit becomes a report you run.
Every contractor relationship should leave a four-document trail: W-9, agreement, invoices, certificate of insurance. Build the file at onboarding — before the first payment — and three annual events become trivial: the January 1099 run, any classification question, and the workers' comp audit. Skip it, and each of those events becomes a scavenger hunt against vendors who have stopped answering email.
The checklist
The contractor file, as an onboarding procedure:
| Step | What you do | What proves it's done |
|---|---|---|
| 1 | Collect a completed, signed Form W-9 before releasing first payment | W-9 saved to the vendor file; TIN and tax classification entered in the ledger's vendor record |
| 2 | Get a signed agreement covering scope, deliverables, rate, and independent-contractor terms | Executed agreement in the file, dated before work began |
| 3 | Require an invoice for every payment | Invoice attached to each bill/payment in the accounting system |
| 4 | Collect a certificate of insurance (COI) for on-site, trade, or physical work; diary its expiration | Current COI in the file covering the period worked |
| 5 | Flag the vendor for 1099 tracking and map payments to a contract-labor account | Vendor appears on the 1099 report; account ties at year-end |
What each document is actually for
The W-9 answers the two questions that decide 1099 filing: what is the payee's TIN, and is it a corporation (generally exempt, except attorneys)? It also protects you from backup withholding obligations for missing TINs. The full filing system it feeds is at /bookkeeping/payroll-compliance/1099-season-playbook.
The agreement is your first exhibit if classification is ever questioned. A contract does not make someone a contractor — the facts do (see /bookkeeping/payroll-compliance/employee-vs-contractor) — but a contemporaneous agreement with project scope, the contractor's control over methods, and no benefits language supports the position and anchors Section 530 consistency.
The invoices distinguish a vendor relationship from a wage one. Contractors bill; employees are paid by time on the employer's schedule. Invoices also give every payment a document trail, which is what makes the year-end 1099 total defensible against the ledger.
The COI is the sleeper. At the workers' comp audit, payments to uninsured subcontractors get charged premium as if they were your payroll — the auditor's default assumption. A certificate showing the sub carried its own coverage for the period worked removes those dollars from the base. Details on the audit are at /bookkeeping/payroll-compliance/workers-comp-basics.
Maintaining it
- Make "no W-9, no payment" a stated policy in the vendor onboarding email.
- Each October, run the 1099 report and reconcile it against the files — chase gaps while vendors still want your next check.
- Diary COI expirations; a lapsed certificate covers nothing.
- Refresh the W-9 when a vendor changes name, entity type, or address — an LLC that elected S corporation status mid-year changes your 1099 answer.
Fifteen minutes per vendor at onboarding. That is the entire cost of a painless January.
Frequently asked questions
- What documents should I keep on file for every contractor?
- Four: a completed Form W-9 collected before first payment; a signed agreement describing the scope and the contractor relationship; the contractor's invoices for every payment; and a certificate of insurance where the work carries liability or injury risk. Together they support the 1099, the classification, and the workers' comp audit.
- When should I collect a W-9 from a vendor?
- Before the first payment, as a condition of being paid. The W-9 supplies the legal name, taxpayer identification number, and tax classification you need to know whether a 1099 is required. Collecting it in January, after the relationship has ended, is the single most common cause of late 1099 filings.
- Why does a contractor's certificate of insurance matter to the books?
- Workers' compensation auditors charge premium on payments to uninsured subcontractors as if they were payroll. A certificate of insurance on file, current for the period worked, is what removes those payments from the audit base — often worth far more than the effort of collecting it.