How do I track an employee paying back a loan made by employer?

First Set up a Liability Account (Other Current Liabilities) for the amount of the loan given.

Then when you pay the Contractor (1099 recipients are not employees)-use the liability account and enter a negative amount.

Example:

Write check for contractor Joe Blow:

Amount of check is $500.00 

Account-Contract Labor would be $500.00

Account-Joe's Loan would be -$50.00

Net amount of check would be $450.00

There is no Liability here.

You give a loan = your Other Current Asset.

There is no such thing as "1099 employee." You are describing a Vendor.

The original payout is entered as Other Current Asset.

The repayments are deposited to bank as "Other Current Asset" repayments.

You are totally correct! The loan would be an Asset... I was thinking of something else...lol

So sorry!