Currently, you have to file a 1099-M (or Misc.) for any subcontractor to whom you pay in excess of $600 per year.
Here are they IRS instructions http://www.irs.gov/pub/irs-pdf/i1099msc.pdf.
You should have all subcontractors complete a W-9 so you have sufficient information to file a 1099-M when and if they cross the $600 limit.
Most potential contractors will not want to complete the W-9 info on the front-end before trying the service so you can just warn them as they approach the $600 limit that you need the W-9 info before you pay them the 601st dollar.
Your situation is similar to what Amazon has to deal with for their "Mechanical Turk" service. You might spend a little time on their site and see how they handle their arrangements with subcontractors.
Yes. Paypal is just a payment processor. You still need to provide a 1099 for all of your contractors.