Learn why you should avoid using Venmo to pay your freelancers and independent contractors — as well as employees and other business costs.
It can be tempting to use Venmo to pay your freelancers and independent contractors. With over 60 million users, the payment app is one of the most popular ways to send and transfer money. Venmo offers a quick and paperless way to do things like payback friends for dinner, but some people have started to use the app for their businesses to pay for employees, contractors, and other goods and services.
While Venmo’s convenient transaction features make it appealing, there are many reasons why this app should not be used to pay freelancers, vendors, or employees. From lack of payment tracking to tax forms and compliance issues, Venmo is not set up for paying wages or running a business.
Here’s why other payment systems, such as Liquid, that are designed for paying freelancers and independent contractors are far better and more reliable options.
Venmo makes compliance with independent contractor requirements tricky.
Venmo does not track business costs or records very well. The app only shows the transaction date, amount, and whatever you label it for each transaction. Since Venmo doesn’t do detailed tracking, using the app can lead to mismanaging your 1099 forms. There are two 1099 forms: 1099-MISC and 1099-NEC. Starting with the 2020 tax year, the IRS reimplemented Form 1099-NEC, which stands for “nonemployee compensation.” 1099-NECs are issued to people you pay $600 or more who are not your employees (freelancers, independent contractors, etc.). Form 1099-MISC continues to be used to report payments of $600 or more (during the year) for expenses like rents, prizes or awards, nonqualified deferred compensations, and other specified types of expenses.
Mixing your daily non-work Venmo payments with your payments to your workers gets confusing very fast! Using Venmo can make it hard to separate out your nonemployee compensation payments, and you will have to do all your 1099 preparations manually. Freelance management systems like Liquid allow you to easily download your 1099 data and streamline filling out Form 1099-NEC for all nonemployee compensation payments.
If you also choose to pay your actual employees through Venmo, you can run into a whole slew of other issues with figuring out wages, taxes, W-2s, FICA, etc., since Venmo only records the name and amount of the transaction along with the date.
Venmo is not designed for certain operational aspects of running a business.
The Venmo site states that the app does not support payments for selling goods or services in person, receiving payments for goods/services, and facilitating peer-to-peer transactions between two Venmo users.
Venmo’s business profiles (meant for individuals/sole proprietors) are currently only available through an invite. Although there are no fees right now, Venmo plans to charge the business profile owner 1.9% + $0.10 per transaction. If you are set up as a partnership, LLC, corporation, or other business entity, then you must apply for a business account (designed around merchants) rather than a business profile.
If you are already accepting payments for your business on your personal Venmo profile, keep in mind that accepting payments for goods and services without an authorized business profile may result in restrictions on your Venmo account. Venmo’s user agreement specifically notes that, unless authorized by Venmo, “paying or receiving payment for a good or service is prohibited.”
Intermingling personal and corporate payments puts you at risk for piercing the corporate veil.
Companies (other than sole-proprietors) should avoid commingling business and personal funds, otherwise, they run the risk of a creditor “piercing the corporate veil.” One of the main reasons that businesses owners incorporate a Corporation or organize a Limited Liability Company (LLC) is to protect their personal assets from creditors for their business. Sometimes, however, courts will hold the owners, members, and shareholders of LLCs or Corporations personally liable for business debts — this is called “piercing the corporate veil.”
One reason courts might pierce the corporate veil is when it is determined that there is no real separation between the business and individuals’ finances and that the owners are just operating the business as if the corporate entity did not exist. Thus, using Venmo for both your personal payments as well as business payments puts your personal assets at risk.
Detailed record-keeping in Venmo is difficult.
Even if you are approved for a Venmo business profile or account, you would have to keep such detailed financial records outside of the app for all employees, freelancers, and other costs that it would not be worth it. You can only see the last 90 days of transactions at a time, making reviewing your records rather slow and painful.
Download Liquid’s Employee (W2) versus Independent Contractor (1099) Compliance Checklist as a handy reference when evaluating your relationships with freelancers.
Venmo lacks features included in professional payment services.
With Venmo, you are missing all the convenient features of other business payment services like detailed payment tracking, QuickBooks integration, and professional invoicing. Unlike services meant for business payments, Venmo does not offer money protection — money sent via Venmo is not insured by the FDIC unless added via direct deposit. Additionally, you can only make transactions in the US, which means you can’t make international payments.
Venmo’s spending limits may cause issues.
Other limitations include weekly spending limits and weekly bank transfer limits. The weekly spending limit is $299.99 without identity verification, and once you are verified, you still face a combined spending limit of $6,999.99 per week. The bank transfer limit without identity verification is $999.99 per week, and for verified users is $19,999.99 per week. The largest amount you can transfer to your bank account at once is $2,999.99. Also, to withdraw funds, you need to wait 1-3 business days or pay a 1% fee for instant transfer (min $0.25 to max $10).
Venmo is an app, not a bank.
Although Venmo is very established and widely used, it is still an app that is ever-evolving. This means that Venmo cannot promise the exact same consistency and security that other non-app-based institutions, like banks, can. For example, in 2015, Venmo rolled out a “Groups” feature that allowed users to create an account for their group or club. However, the Groups Product Beta has now ended, and you can no longer sign up for this feature. As a business owner, you want consistency and guarantees when managing your funds and payments. You don’t necessarily want an app that adds and takes away experimental features.
Some privacy concerns exist with Venmo.
Part of the reason Venmo is so appealing is that it’s free, which seems like it can help reduce costs for your business. The app can be downloaded for free, but in doing so, users agree to let Venmo pass on their data. Venmo collects and sends your data, such as location and contact info, to large third-party data firms. In 2019, the FTC criticized Venmo for misleading users regarding privacy settings and for misrepresenting the app’s security by saying it was “bank-grade” (which the FTC disputed). Some might argue that this will not directly affect daily business operations, but your business’s security and privacy are paramount and should be prioritized.
Save time and be safe with your business.
Venmo is great for personal money transfers between friends and family, but you should be careful about integrating it into certain aspects of your business. The Venmo site itself states that the app should not be used to accept business/commercial transactions unless explicitly authorized by Venmo. The low cost and ease of transactions make Venmo an attractive option, but it is not worth the time and effort you will have to put into manual bookkeeping, calculations, and tax management.
Other payroll sites and business payment services, like Liquid, deliver high security, provide more detailed records, and offer more features. Make the smart choice and keep Venmo for social transactions rather than paying your business’s employees, contractors, and freelancers.
Ready to pay your freelancers, vendors, and suppliers? Try Liquid today.